The largest stocks bounced the most, including the NQ8 sector, but
the more speculative/growth based ARKK almost attracted no money yesterday.
The small caps looked also very weak in terms of Money Flow
The most disturbing pattern was the lack of strength in the Cumulative Ticks. We can see below that past reversals have been supported with a Cumulative Tick crossing above its average Pink line. This time the pattern looks different.
On the other hand, the current IWM/SPY ratio clearly shows a reversal pattern that is very similar to those of past sharp reversals.
We can also see below that the Biotech sector (IBB), which had been under intense selling pressure for the past days experienced a second dip during the day yesterday while its MF displayed strong buying. This usually happens at the start of strong reversals.
Another worry, is the 10Y Treasuries pattern. I had been expecting more signs of Treasuries buying as I thought that rates would ease further down, but rates stayed almost flat and the 10Y Treasuries seem to be under slight selling pressure. This is something to continue monitoring.
Conclusions:
The equities markets closed the day before yesterday in a slightly overvalued situation due to still high 10Y rates. The 10Y rates did not move yesterday, but equities bounced back up into more overvalued territory.
This reversal is a sign of strength and a sign or momentum change. It is for now not supported by the Cumulative Tick, but could eventually gain strength. However, we would need weaker 10Y rates to support such a move.
The reversal of yesterday could be the sign that investors expect a Q2 rush to buy US Treasuries into the new Quarter, which would eventually push equities higher. Hence, weakness is bought in anticipation.
Eventually that bounce will fail, but before this occurs, I believe that the S&P500 will try to test the $4000 level as the rates will ease down to 1.5%... Then we will have Q1 earnings and guidance.
Equities are a buy here, except if rates break out hard.
