Some people look at relationships, and instead find coincidence. The following chart shows the relationship between SPY to both QQQ and IWM over the last 4 years. These are really not relationship charts, but rather ratio charts of SPY to each of the others. One shouldn’t think that these ratios will stay where they are, because the evidence over time says that these ratios are in flux.
And yet, if you care to believe in support and resistance relationships, the above charts can show you where the momentum is, and where it should end.
A long term view of the IWM:SPY chart shows you that the ratio reached its peak back in 2010, and did not drop below 53 until 2020. But with the exception of the period between October 2020 through September 2021, it has not recovered to its old status above 53.
Looking closely at the IWM:SPY ratio, we can see where it is about to hit initial resistance.
At times, I have personally used trading long or short IWM versus an opposite position in SPY. This is a hedged position, as it allows one to maintain profits riding a trend. I mention this as a thought for those seeking a way to hedge longs, with a very close-by stop to that hedge.
Looking at the relationship between QQQ and SPY, we see an entirely different picture:
Prior to 2020, this ratio never increased above 68. Today it stands at 87, very close to an all time high.
We can go through the mental gyrations as to why one Index has suffered while the other has surged against SPY since 2020. But the chart is Price, and that’s all you need to know.
On Wednesday I posted a warning message. It was not a call for shorting, but I did suggest that it might be a good time to begin planning for hedges or sales. I don’t believe that T-Theory, as developed by Terry Laundry, ever suggested shorting the market. Instead, the concept was to find alternative investments that might do better than the one whose T had ended. We expect equities to return no better than the rate of the Ten Year Treasury when a T ends. At least, that was the initial concept. Traders like Marty Schwartz (known as Pitbull), probably did short at the end of a T, but that’s not what a capital preservation perspective would suggest. And the following charts have not broken down, even though Price is extremely high on many levels.
Looking at how the internals have changed since Wednesday’s post, the Bullish Percentage index BPSPX is still above 50, and seems to have turned higher: It is attempting to break above the middle Keltner without a move to the lower Keltner. Remember, until this index is below 50, it is still showing that more than half the SPX has Point and Figure charts trending higher.
The Simple chart shows a slight move higher in Breadth and Volume momentums, but it has not yet confirmed a renewal of a positive path.
The main T-Theory chart is at an important point. The Volume Oscillator and the McOsci have both reached their zero lines, but haven’t yet crossed above them. Furthermore, they are both at their respective down trending lines:
Should both fail to cross their trend lines in a positive manner and move downward from here, we could be looking at a month of weakness before they create a new bottom.
The Hourly T chart shows NY Up/Down Volume to be neutral, even with Friday’s advance:
Lastly, I mentioned Bitcoin as recently being a point of concern for its recent run. As I mentioned, I use 35 as the Optimum Moving Average for this asset.
The two charts that I posted looked like this on Wednesday:
They now look like this:
The Daily chart is maintaining its support, and the Hourly chart now follows its support more closely. I would watch those supports carefully.
I’d like to take this opportunity to thank those of you who responded to my request for donations to the Cat Museum of New York City. It’s most appreciated. We’re about halfway to our goal to register for non-profit status. If you haven’t donated yet, the link follows:
Again, many thanks.
T-Theory Thoughts 