Charting the Pain – August 21, 2021

Last week, we had bullish breakouts around the world. We also had agriculture trying to break out. This week, literally every breakout was rejected. Commodities were bludgeoned. Steel and copper broke their uptrends. Crude fell below support. Commodity countries are rolling over as a group. Some declines were more subtle than others as the damage in Asia was large again. Japan traded at 2021 lows. South Korea broke down. The breakouts in Europe reversed. The NYSE market composite breakout failed. The emerging market ETF broke down to new lows for 2021, whereas the $SPX is up 19%. The semiconductor breakout of two weeks ago failed. Currencies around the world fell below the 65-week moving average, while the US dollar soared higher.

I think one of the most important things kicking up right now is the dollar. Why is it breaking out? I don’t know, but the rest of the world is worried about something and moving to the dollar.

The Commodities chart ($CRB) included in this newsletter points to an area of resistance and it coincided with a breakout in the dollar. This should not be ignored.

The newsletter is titled ‘charting the pain’ but the indexes barely moved. Below the index surface, it was a complete smackdown, much like last weeks. Almost 1000 stocks in North America had declines of more than 5%, whereas 140 had up moves of 5 %. It was the same ratio for the major moves over 10%. It’s hard to make money or even stay flat when the riptide is emptying the account. The indexes didn’t budge, but the selling was broad.

What really concerns me are the Bullish Percent charts and the percentage of stocks above the 200 DMA charts. These current levels are associated with big multi month moves down after the indicators weaken, and we haven’t even started the decline. Much like the glaciers in the picture, the big indexes are still up there, but the majority of the stocks are moving lower.

The McClellan Summation indexes are telling us we have big declines coming.

Summary: Commodities seem so oversold already, that they are due for a bounce. But the technical damage is done to the charts. Ignoring a downturn in commodities is rarely a good idea. The number of strong groups continues to dwindle. For me, this is a full retreat. It is a very frustrating market to analyze to have such weakness underneath, but the indexes making new highs. This is how major tops are formed.

The video covers a lot more information, and I expect a big increase in the swings as downtrend typically have wider price moves both up and down.

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