I will discuss today's LT Trend Model "Death Cross" SELL signal on TLT in the section on Bonds. Let's dive "under the hood" on Consumer Discretionary sector (XLY) which had a negative 20/50-day EMA crossover ("dark cross"). This triggered an IT Trend Model "Dark Cross" NEUTRAL signal.
XLY dropped below support at the December low today. It is nearing support at the 200-day EMA and summer highs and most of the indicators are oversold. I wouldn't hold out hope here until we at least see the PMO turning back up. While the %Stocks > 20-day EMAs are well below 10%, participation can easily move to 0% and stay there in a bear market for the sector. Indeed, the SCI is only just below 50%. That number could definitely move lower. I also note that the relative strength line has yet to reach relative lows. It's been a terrible correction for XLY, but I doubt it is over. With any luck we might get some consolidation along support. At this point, growth stocks are out of favor, while value plays and inflation beneficiaries are winning. It's not time to go bottom fishing in growth stocks.
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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: [[comments]]
RRG® charts show you the relative strength and momentum for a group of stocks. Stocks with strong relative strength and momentum appear in the green Leading quadrant. As relative momentum fades, they typically move into the yellow Weakening quadrant. If relative strength then fades, they move into the red Lagging quadrant. Finally, when momentum starts to pick up again, they shift into the blue Improving quadrant.
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: Yesterday's downside exhaustion climax fizzled as I expected. The fact that we didn't see better price action off yesterday's downside exhaustion is a testament to how weak this market truly is.
The rising trend channel is now being breached with today's close. However, support is currently holding at the September highs and December lows. The RSI is negative and still falling. The PMO is nearing negative territory. Stochastics, while in oversold territory, are still moving lower. The VIX punctured the lower Bollinger Band again on our inverted scale. Typically we see an upside reversal of some sort over the next day or two.
PARTICIPATION: The following chart objectively shows the depth and trend of participation in two time frames.
- Intermediate-Term - the Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA). The opposite of the Silver Cross is a "Dark Cross" -- those stocks are, at the very least, in a correction.
- Long-Term - the Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA). The opposite of a Golden Cross is the "Death Cross" -- those stocks are in a bear market.
The SCI continued lower and based on the participation numbers I'm going to show you in the "Bias Assessment" section, that reading will be moving much lower. It needs to--it's not oversold even in the near term. Similarly, the GCI which was unchanged today, is far from being oversold.
S&P 500 New 52-Week Highs/Lows: New Highs contracted. The 10-DMA of the High-Low Differential was turning back up, but now it has resumed its decline and is not oversold by any means. Typically when this indicator declines the market is internally weak.
Climax* Analysis: Today was another climax day, not as strong or as unanimous as yesterday, but another downside exhaustion climax nonetheless. As the day began, it looked as if we were going to get a churn day and no significant bounce, but the churn turned into more price decline. While the assumption is exhaustion, there is the potential that we'll see more of the same tomorrow.
*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 indicate either initiation or exhaustion.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL to OVERSOLD.
The STOs are both negative now with the STO-B now entering somewhat oversold territory. The STO-V is in negative territory again, but is only neutral, meaning it can certainly accommodate more downside price action. Participation of %Stocks > 20-day EMA tells us that less than 1/3rd of the SPX have price above their 20-day EMAs. %PMOs Rising is at only 16%! That means that 84% of the SPX have PMOs that are pointed downward. That's a large number, but as you can see both indicators are still not as oversold as they can get.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM and ITVM are both overbought and falling. Only 37% of stocks hold PMO BUY signals, but given only 16% have rising momentum, that number will definitely get much worse. It needs to get worse, it is far from oversold.
Bias Assessment: Yesterday's comments still apply:
"The bias is now firmly bearish in the short and intermediate terms. Far fewer stocks have price above their 20/50-day EMAs than silver crosses. Long term has a bearish bias as well given their are fewer stocks above their 200-day EMA than have golden crosses. So while 81% is a bullish reading for the GCI, it is deteriorating and will likely deteriorate further."
CONCLUSION: Yesterday's downside exhaustion climax amounted to nothing, but today we have another one and it is accompanied by a VIX that has punctured the lower Bollinger Band on our inverted scale again. While these climaxes will often resolve with a bounce of some sort, in a weak market they many times will resolve with churn or consolidation. That seems a reasonable assumption to move forward with. Don't trade on "hope" that your losers will reverse. Be very careful right now! With so few stocks carrying positive momentum, your chances of locking in on a winner is slim. This market likely has more downside to endure.
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BITCOIN
Yesterday's comments still apply:
"Bitcoin failed at overhead resistance along the 20-day EMA and the December lows. This is clearly a strong support zone. The RSI is negative but flat and Stochastics are the same. The PMO is on a BUY signal which suggests to me that we should see this support level hold. If the PMO turns down, support will be very vulnerable here."
INTEREST RATES
Rates pulled back slightly today. We expect to see long-term rates hit May highs.
10-YEAR T-BOND YIELD
$TNX lost two basis points today and now has formed a price island hovering above support. These often resolve downward; hence the name we often use, "Reverse Island". However, there is a good chance that rather than a reverse island, we have a breakaway gap which will likely mean another gap up soon.
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 failed to overcome resistance at the 20-day EMA. It didn't even test the declining trend before turning back down. The RSI and PMO moved south quickly. The short-term Stochastics are still rising, but are in negative territory below net neutral (50).
Looks like the Dollar will test last week's low soon.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold broke out strongly from the symmetrical triangle. The RSI is still positive and is now rising. The PMO has now accelerated upward and Stochastics have turned back up.
Full Disclosure: I own GLD.
GOLD Daily Chart: Discounts continue to trend lower as more investors become bullish on Gold. Today's breakout above the July/August/September tops suggests we will see a test of the November high soon.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners definitely benefitted from Gold's strong rally. I mentioned yesterday that I believed $30 support would hold. Participation shot to the rafters giving Gold Miners a strong bullish bias in the short and intermediate terms.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:
"Crude Oil remains the shining star in the darkness of a weak market. USO has broke to the upside from a bearish pattern and has now overcome resistance at the October high. The RSI is overbought now but I would point you to October where it remained so most of the month. The PMO is not yet overbought. Stochastics are moving sideways above 80 showing now short-term weakness."
BONDS (TLT)
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With yields declining today, TLT benefitted. However, we now have a LT Trend Model "Death Cross" SELL signal. Other indicators are still very negative so I doubt this level of support will hold.
Support is certainly available here, but we don't see an end to rising yields yet so that will weigh very heavy on TLT. The picture is very bearish.
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Technical Analysis is a windsock, not a crystal ball.
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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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