It's Bear Hunting Season

September 3, 2021

From the desk of Steve Strazza @Sstrazza

Thanks to everyone who participated in last week’s mystery chart.

We questioned whether it was a rounding top reversal pattern – in which case we’d be looking for a breakdown.

Or, if it was actually a failed breakdown - and we all know what tends to follow those patterns…

The responses we received were mixed. But there were plenty of bulls who wanted to be long against the former lows and bet on a swift reaction higher.

That’s pretty much the camp we were in too. We recently wrote about all of the whipsaw action we’ve been witnessing.

We said the next critical piece of information we’d be looking for was whether or not these patterns would see some real follow-through and confirmation.

Fast forward a week or so, and we definitely have our answer.

So let’s talk about it, and more importantly, what it means for risk assets.

We used the Oil & Gas Equipment & Services ETF $XES as our mystery chart because it is a great example of this theme.

Here's an updated view:

Not only did buyers reclaim a critical level of support but price confirmed the failed move with a roughly 20% rally as Energy stocks have been some of the best performers these last two weeks.

And it’s not just Energy leading lately. We’re seeing the same from a lot of groups who registered similar whipsaw patterns. And guess what, many of them are market laggards.

That’s information.

The fact sellers looked to be in their best position in months to finally punch prices beneath key support zones in many of the weakest areas, but yet again couldn’t make it happen is surely not bearish.

Now the buyers are back in control.

Speaking of laggards, the reopening stocks have been among the weakest performers since the first half of the year. And what better barometer for this group than the airlines?

Here's the NYSE Airline Index $XAL:

Another whipsaw move and failed breakdown.

So, what does it tell us if the weakest areas keep defending support like this?

Well, it’s definitely not a good luck for the bears.

Nor is the fact that so many of the strongest areas are making new all-time highs!

But, back to the failed breakdowns. As we technicians like to say:

From failed moves come fast moves in the opposite direction

And you’ll be hard-pressed to find a better example of this out there than uranium right now:

After a multi-year base breakout in the Uranium ETF $URA, sellers recently shook prices below those key 2017 highs.

But you already know what happened next! Buyers quickly repaired the damage and trapped the bears as price ripped straight higher off the August lows.

Uranium is an area we like a lot right now. You can read more about it in today’s commodity post.

So the bottom line is simple. A week or two ago we saw a lot of failed breakdowns and asked ourselves whether or not they'd experience follow-through.

As illustrated in this post, we got about as strong of follow-through as the bulls could have wished for.

Again, the fact that so many of the weakest areas just won’t break down is incredibly constructive.

If bears can’t even take out airline stocks, how can they ever grab a hold of the broader market? You have to start somewhere, and right now they’re moving backward.

While it’s still too soon to draw this conclusion with enough conviction, we think that these whipsaw moves could very well be the spark that kicks off a fresh leg higher for markets.

Not only do buyers have the ball back in their hands, but they’re starting to drive down the field.

On that note, who else is excited for Football? I know I am!

We hope you enjoyed this post. As always, shoot us a note and let us know what you think.

- @sstrazza

Allstarcharts Team