Before I talk Utilities, I do want to inform readers that today was a "Climax Day". I will discuss the implications in the section on Climax Indicators.
The Utilities sector (XLU) was my "sector to watch" this week. That means that I believe based on the technicals that we should see it outperform most of the other sectors. The chart still has merit but there are problems evolving that have me backing off my bullish stance.
The biggest positive is the new "Silver Cross" of the 20/50-EMAs. This positive crossover triggered an IT Trend Model "Silver Cross" BUY signal. Other positives would be a rising PMO that just hit positive territory and a rising Silver Cross Index (SCI).
However, like the market, participation is fading fast as more and more stocks lose support at their 20/50-EMAs. Relative performance hasn't improved, it is performing about as well as the SPY right now. This is a defensive sector and the market is looking 'toppy' so we could see participation improve, but traditional sector rotation hasn't been a factor given the dizzying moves in and out of each. Utilities also have inflationary pressures given energy prices have skyrocketed. While they are likely to pass this on to the consumer this winter, it could hurt overall performance in the longer term.
The DecisionPoint Alert Weekly Wrap presents an end-of-week assessment of the trend and condition of the Stock Market, the U.S. Dollar, Gold, Crude Oil, and Bonds. The DecisionPoint Alert daily report (Monday through Thursday) is abbreviated and gives updates on the Weekly Wrap assessments.
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MAJOR MARKET INDEXES
SECTORS
Each S&P 500 Index component stock is assigned to one, and only one, of 11 major sectors. This is a snapshot of the Intermediate-Term (Silver Cross) and Long-Term (Golden Cross) Trend Model signal status for those sectors.
RRG® Chart: While we have four sectors in Leading, only XLY and XLK are traveling in the bullish northeast direction. XLV is showing improved strength. XLF could be making the turn back toward Leading. XLU, while it did garner a new IT Trend Model "Silver Cross" BUY signal, it is reversing direction toward Lagging.
CLICK HERE for an animated version of the RRG chart.
CLICK HERE for Carl's annotated Sector charts.
THE MARKET (S&P 500)
IT Trend Model: BUY as of 10/18/2021
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: I suspected after yesterday's bearish black candlestick that we would see price backing off all-time highs. Currently price is still holding above support at the September top, but given today's climax I highly doubt that will hold. I believe the 20-EMA will now be tested. While that might seem scary, it would be a less than 2% decline. Note the VIX has a rounded top. Generally when the VIX tops or punctures the upper Bollinger Band on the inverted scale, we will see a decline.
The PMO is still rising and the RSI is still positive. However, Stochastics have turned down. They are still above 80 which implies internal strength, but we don't want to see them declining.
Participation: The following chart uses different methodologies for objectively showing the depth and trend of participation for intermediate- and long-term time frames.
- The Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA).
- The Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA).
- The Bullish Percent Index (BPI) shows the percentage of SPX stocks on Point & Figure BUY signals.
The SCI is continues to rise but the GCI is declining again.
Participation was already warning us there were problems and I have certainly been pointing that out. It is positive that they have left overbought territory, but an upcoming market decline will push these numbers much lower.
Climax Analysis: Today was an obvious downside "initiation" climax. First, Down/Up Volume Ratios moved well above our threshold of 3.0. Net A-D and Net A-D Volume are outside their normal ranges and Total Volume was elevated above the annual average. This confirmed what the Volume Ratios were telling us... we have a downside initiation climax. This means we should expect prices to move lower over the next day or two.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs backed down quite a bit today. Again, these indicators were also flashing "caution" as had begun to pull back from overbought territory. We still have more than half of the SPX with rising momentum, but just barely and that percentage continues to move lower.
Intermediate-Term Market Indicators: The intermediate-term rising market trend is UP and the condition is NEUTRAL.
Today I included the thumbnail on this chart so that you can see that IT indicators topped in overbought territory. %PMO crossover BUY signals has also topped in overbought territory. I've been less concerned about an intermediate-term decline, but deterioration here could lead a short-term decline into a longer-term decline.
Bias Assessment: It occurred to us that one of the ways we can measure market bias is to compare the SCI to the percent of stocks above their 20/50-EMAs. When the percentages are lower than the SCI, the market bias is bearish and if they are higher, it is bullish. Any "mechanical" signal requires additional analysis to confirm the numbers.
With participation percentages dropping below the SCI reading of 59%, the short-term bias is getting bearish. The SCI could begin topping very soon.
CONCLUSION: Today we saw a downside "initiation" climax. This tells us to expect lower prices in the next day or two. Best case scenario is a less than 2% drop to the 20-EMA. However, if the selling begins in earnest or investors are spooked by next week's FOMC statement, the decline could accelerate. A decline to $430 (the next strongest horizontal support line) would mean a drop of about 5.3%. Depending on your risk appetite and exposure, consider taking some profits off the table or move mental stops to hard stops.
I'm 85% exposed to the market.
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BITCOIN
Bitcoin has now executed a bearish head and shoulders pattern. Interestingly, the minimum downside target of the pattern would take price down to support at $52,500. Just remember these are "minimum" downside targets. The PMO triggered a SELL signal today and Stochastics have dropped below net neutral (50). My expectation is a test of that support level.
INTEREST RATES
Long-term rates are holding support but it now appears we have a double-top on the 20/30-year yields. Bond funds dominated my scan results for today's DP Diamonds Report.
10-YEAR T-BOND YIELD
The 10-year yield lost more than 5 basis points today dropping it out of the bullish rising trend channel. The PMO triggered a crossover SELL signal. Support is certainly available at many levels, but it appears the wind will be at the back of Bond funds in the short term, the question is how much upside potential is available given so many support levels, including the 50-EMA, could halt these falling yields.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Yesterday's comments still apply:
"The Dollar chart is beginning to improve. While the PMO hasn't actually turned up, the RSI and Stochastics have. Price is holding above the August top and has now closed above the 20-EMA. Price is still traveling within a bearish rising wedge, but given price didn't have to go down and test the bottom of the pattern before turning back up, there is a slight bullish bias in the short term."
GOLD
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold continues to cling to the bottom of the rising trend channel. A "Silver Cross" of the 20/50-EMAs is nearing. The PMO is rising somewhat and the RSI is still positive. Stochastics are looking less bullish as they are trying to top below 80, but %K is still above %D so there is not negative crossover yet.
(Full disclosure: I own GLD as a long-term buy and hold position.)
GOLD Daily Chart: Discounts expanded somewhat, but overall they are still trending lower which suggest investors are improving their outlook on Gold. The 'tortured' rally should continue.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Gold Miners saw an IT Trend Model "Silver Cross" BUY signal. Right now price is being squeezed between support and the 200-EMA. Given the bullish RSI, PMO and strong participation of stocks above their 20/50-EMAs, I'm expecting a breakout. However, the Gold chart above is looking "iffy" so we should be prepared for Miners to struggle a bit here."
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/7/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil finally broke below the steep rising trendline (in red), essentially executing the rising wedge. The PMO has topped and is lining up for a negative crossover. The RSI is still positive and support is available at the 20-EMA and the bottom of the rising trend channel.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 10/1/2021
LT Trend Model: SELL as of 10/21/2021
TLT Daily Chart: With yields dropping deeply, TLT reaped the rewards with a big rally up above resistance at $145.50 and the 50/200-EMAs. We saw a "death cross" last week, but if price can remain above both the 50/200-EMAs, a Long-Term Trend Model "Golden Cross" BUY signal could materialize. The bullish reverse head and shoulders pattern has not executed. The minimum upside target is right at overhead resistance on the September top.
Overhead resistance is about 2.6% away, so a move toward the minimum upside target may not provide much in the way of upside potential.
Technical Analysis is a windsock, not a crystal ball.
-- Erin Swenlin
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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
NOTE: The signal status reported herein is based upon mechanical trading model signals, specifically, the DecisionPoint Trend Model. They define the implied bias of the price index based upon moving average relationships, but they do not necessarily call for a specific action. They are information flags that should prompt chart review. Further, they do not call for continuous buying or selling during the life of the signal. For example, a BUY signal will probably (but not necessarily) return the best results if action is taken soon after the signal is generated. Additional opportunities for buying may be found as price zigzags higher, but the trader must look for optimum entry points. Conversely, exit points to preserve gains (or minimize losses) may be evident before the model mechanically closes the signal.
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