In today's recording of the DecisionPoint Show on StockChartsTV, Carl discussed the lack of broad market participation in today's rally and I followed up with a look at the Sector CandleGlance where only one sector is showing rising momentum.
Why wasn't it a broad market rally? This rally was clearly led by the mega-cap and larger-cap stocks. Below is a table showing the comparison of the cap-weighted indexes v. the equal-weight ETFs. The SPX outperformed the equal-weight SP500 ETF (RSP) by almost 0.5%! The SP600 (IJR) was 0.4% higher than its equal-weight ETF (EWSC) and finally, the NDX (QQQ) finished 0.75% higher than its equal-weight ETF (QQEW). SP400 (IJH) was an exception today given the equal-weight (EWMC) outperformed by 0.26%.
I took a look at the CandleGlance of the 11 sectors to find positive momentum. Look at the Price Momentum Oscillator (PMO) configurations on all of the sectors. The only sector with rising momentum is Utilities (XLU) and even that PMO looks questionable. Technology (XLK) still has its PMO above the signal line, but it is less than 0.01 away from a negative crossover and it is still technically declining--it kept the same PMO reading from Friday, but before that, it was declining.
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: I noted in the opening that nearly every sector has negative momentum with the exception of Utilities (XLU) and to some degree Technology (XLK). Notice that the defensive sectors, XLU, XLP and XLRE are headed toward Leading. Additionally, we've seen an improvement in heading for defensive sector Healthcare (XLV). XLY is still showing relative strength. Negative sectors: XLC, XLE, XLF and XLI.
CLICK HEREfor 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: The SPY rallied strongly and managed to close above the 20-EMA. The bearish double-top is still in play given the short-term declining tops trendline hasn't been broken. The RSI did makes its way above net neutral (50), but the PMO is still declining on an overbought crossover SELL signal. I do spot a small positive OBV divergence.
Total Volume exceeded its annual average. Stochastics are falling and are in negative territory.
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 SCI and GCI are both falling. While the percentages are still in bullish territory, they are seeing damage.
S&P 500 New 52-Week Highs/Lows: New Lows are the highest we've seen in the past year. Today, we had New Highs and New Lows equal to each other. The 10-DMA of the High-Low Differential is still in decline but has reached oversold territory.
Climax* Analysis: I was honestly a bit shocked that we didn't see a climax day given the high Total Volume. Friday we saw a downside initiation climax that suggested lower prices ahead. Friday the VIX closed below the lower Bollinger Band on the inverted scale. That typically precedes a one or two day bounce. A high VIX reading, one outside the normal range, tells us that sentiment is very bearish. Sentiment is contrarian, so extremely bearish sentiment is bullish in the very short term.
*A climax is a one-day event when market action generates very high readings in, primarily, breadth and volume indicators. We also include the VIX, watching for it to penetrate outside the Bollinger Band envelope. The vertical dotted lines mark climax days -- red for downside climaxes, and green for upside. Climaxes are either initiation or exhaustion.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERSOLD.
The STOs reversed direction again and are rising. I like that the STO-V has been trending higher since all-time highs were hit. I see this as a positive divergence. Participation improved, but there are still less than 25% of stocks with rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
All IT indicators continue to move lower. Only about 25% of SPX stocks have PMO crossover BUY signals and the number is continuing to move lower. On the bright side it is getting oversold.
Bias Assessment: We discussed how we analyze bias in today's DecisionPoint Show. For the short-term bias we compare participation of stocks > 20/50-EMAs with the SCI. While we did see increased participation, the percentages are well below the SCI reading giving us a bearish short-term bias. Intermediate-term, we look at the SCI and its direction combined with participation. Currently it is at a somewhat healthy 64%, but it is moving lower and participation numbers suggest it can move much lower, giving us a bearish bias in the intermediate term. The long-term bias is determined by looking at the GCI and comparing it to the %stocks > 50/200-EMAs. While the 80% GCI reading is bullish, we can see the current declining trend and we know that with less stocks > 50/200-EMAs, we will see it move even lower, giving us a bearish bias in the longer term.
CONCLUSION: We saw strong rallies in most of the broad market. Unfortunately, not everyone participated based on the equal-weight ETFs. Given the VIX puncture of the lower Band on Friday it isn't surprising to see a rebound today. As for 'staying power', the bias in negative in all timeframes and most importantly, the short-term declining trend is still in force. That has kept the bearish double-top on the SPY in play. I expect this could be a 'dead cat bounce'. Price got very extended to the downside, as did sentiment. Stay defensive. We don't think Friday was an outlier.
Many of my stops triggered Friday, so I am 30% exposed to the market with 70% being in cash and readily available to trade.
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BITCOIN
Bitcoin rebounded strongly but is still struggling with overhead resistance at the 20/50-EMAs and October low. The RSI and Stochastics are showing some improvement, but both remain in negative territory. The PMO has now dropped below zero.
INTEREST RATES
Yields fell last week, but ticked slightly higher today.
10-YEAR T-BOND YIELD
$TNX is back within the symmetrical triangle. The pattern is considered a "continuation", so we would look for an upside breakout. However, indicators are still quite negative with a PMO falling on a SELL signal and Stochastics still falling from the sky. The RSI is still negative. More than likely we will see more bouncing around inside the pattern.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar lost is steep rising trend, but it still looks fairly strong given the positive RSI and rising PMO. Stochastics are weakening very slightly, but remain above 80. We expect to see the Dollar continue to trend higher.
GOLD
IT Trend Model: BUY as of 10/28/2021
LT Trend Model: BUY as of 11/16/2021
GLD Daily Chart: GLD continues to consolidate sideways. We don't have today's discount/premium on Sprott PHYS, but notice the extremely high rate on Friday. This suggests investors are very bearish on Gold. Sentiment being contrarian, this could lead us into higher prices. Stochastics have paused, but other than that the RSI is negative, the PMO is falling and Stochastics are in negative territory.
(Full Disclosure: I own GLD as a "buy and hold" position.)
GOLD Daily Chart: $GOLD is still holding onto a rising trend. There is a saucer shaped bottom on $GOLD and GLD that could result in higher prices. While the indicators are still negative, price action is encouraging.
GOLD MINERS Golden and Silver Cross Indexes: Unlike Gold, Gold Miners did lose their short-term rising trend. Participation is drying up, so while we have a bullish 80% reading on the SCI, participation numbers are much lower and will continue to drag the SCI down. In general, Gold Miners are suspect, but as an owner of a Gold Miner, I can say that not all of them are configured bearishly. If we do see a rebound in Gold prices, that will help GDX recover. For now, they're looking bearish.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/3/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO tanked on Friday (no pun intended) pushing price down to test the 200-EMA. In August this was the pivot point. Today prices did rise, but finished near the low for the day, forming a bearish black candlestick. Now there are unintended consequences arriving with the new COVID Omicron strain. Travel bans are being reinstituted and some countries are back in lockdown. This should soften demand, possibly bringing Crude Oil prices down.
Indicators are bearish with a newly negative PMO, falling/negative Stochastics and RSI in negative territory. We could see a "dark cross" of the 20/50-EMAs soon. We've been fairly bullish on Oil, but these outside influences combined with negative indicators suggest prices will consolidate at best.
BONDS (TLT)
IT Trend Model: BUY as of 11/8/2021
LT Trend Model: BUY as of 11/4/2021
TLT Daily Chart: TLT is configured bullishly with a positive RSI, rising PMO and strongly rising/positive Stochastics. I've also seen a number of Bond funds in my scan results. However, overhead resistance looks very strong and yields are reversing to the upside. We think Bonds are currently bullish, but overhead resistance and rising yields will likely cap gains at $152.
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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DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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