The market has already been struggling with volatility and weakness--bear market conditions. Yesterday's inflation report and St. Louis Fed President Bullard's remarks of speeding up rate hikes, set the market in decline. We were seeing a mid-morning attempt to rally today, but around 2p ET the White House basically told us that Russia is moving forward with an invasion of Ukraine before the Olympics end. They also told US citizens to leave Ukraine, they won't be airlifting people out. There is a Saturday phone call scheduled between the Presidents, but it doesn't sound good. We are already seeing the market pressured by economic issues, global instability will only make it worse.
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
For Today:
For the Week:
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.
For Today:
For the Week:
Short-term (Daily) RRG: The short-term RRG is already showing how relative strength is being lost by XLK and XLV. We do see XLF headed for Leading which is why I still like Banks. Another sector showing some improvement would be XLRE and XLI. I am just guessing here, but if war is likely, Industrials will likely see relative strength... but that could simply mean 'moving lower, but not as fast'. Real Estate I don't trust given the mortgage rates are skyrocketing. The most bearish sector on the short-term chart is XLB. That is about to change given the outlook for Gold is bullish. All others are attempting to hook back around, but they are mostly in Lagging. XLU and XLP need to turn it around quickly or they will find themselves in Lagging. Given they are defensive areas of the market, they should see some love.
Intermediate-Term (Weekly) RRG: In the longer term, XLY and XLK look the least favorable. The most bullish is XLE which continues to shoot off the charts. That will continue. XLF has popped into Leading this week and like XLE has the most bullish northeast heading. XLP also has the northeast heading but it is slowly being pulled lower. According to the weekly RRG, up and coming sectors are XLI and XLV. I'd be careful with XLV as it is loaded with volatile stocks right now. XLB managed to turn a little eastward which is good. XLC is trying to come back to life in the intermediate term.
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: NEUTRAL as of 1/21/2022
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: We can see a clear bearish double-top on the SPY now. The minimum downside target of the pattern would take price to support at the October/January lows. The PMO had finally triggered a crossover BUY signal and the RSI had been positive. Stochastics had finally reached above 80. That has changed considerably. The PMO will likely see a crossover SELL signal next week and Stochastics are declining and are below 80. The RSI is firmly in negative territory below net neutral (50).
The VIX spiked on the news regarding Russia and Ukraine, but we still don't have a puncture of the lower Bollinger Band on our inverted scale. A puncture could suggest a price rebound. We don't have it.
SPY Weekly Chart: Price had just pushed above the 17-week EMA last week, but it closed below and wasn't able to recapture the rising trend. The market is now sitting precariously on the 43-week EMA.
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.
We now have a second top below the signal line for both the SCI and GCI. This is very bearish.
The following table summarizes participation for the major market indexes and sectors. We consider readings above 70% to be bullish. As far as the intermediate term, only two sectors have SCIs above 70%, XLE and XLU.
New 52-Week Highs/Lows: New Highs are contracting which isn't a surprise. There were more New Lows which is also not a surprise. Notice that typically when the 10-DMA of the High-Low Differential bottoms and rises that price usually does too. That's not happening now... bear market rules, don't expect a bullish resolution in a weak or correcting market.
Climax Analysis: Yesterday we had a downside initiation climax. Today we have numerous climax readings, giving us a downside exhaustion climax. That doesn't mean that the selling is over, although there is the potential for some churn. We wouldn't look for a major trend reversal.
*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.
STOs contracted this week out of overbought conditions. They are only in neutral territory. They can accommodate far more downside in the short term. Participation is falling like a rock.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
IT indicators had been contracting out of negative territory. Today they shifted gears and are declining again. %PMO BUY signals topped today before reaching overbought territory.
Bias Assessment: The market bias is bearish in all three timeframes. %Stocks > 20/50-EMAs now have readings below the SCI. %Stocks > 200-day EMAs is well-below the GCI.
CONCLUSION: Inflation, rising rates and global unrest put pressure on the market Thursday and Friday. This isn't a temporary condition, all three will continue to weigh heavy. There is a distinct bearish bias across all timeframes. STOs/ITBM/ITVM are expanding into negative territory and are not overbought in the least. Strap in. This looks like the final gasp of an overbought market. Erin is currently 15% exposed to the market.
Calendar: Options expiration is next week. Expect low volatility toward the end of the week.
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BITCOIN
Bitcoin spent most of the week rallying higher out of a bullish falling wedge. It promptly hit overhead resistance at the December low and was turned away. The RSI is still positive but should hit negative territory shortly. Stochastics are declining. The PMO is a more intermediate-term indicator so it hasn't turned all the way down yet. It likely will top beneath the zero line, an especially bearish condition. There is still hope here as support is already nearing at the 20-day EMA and September/January lows.
INTEREST RATES
After ripping higher this week, yields cooled today dropping over two basis points for long-term yields.
10-YEAR T-BOND YIELD
$TNX is traveling within a steeply rising trend channel and is preparing to tap the bottom of the channel. Stochastics have peaked and the PMO is looking toppy. Look for a likely test of the January high, 20-day EMA and bottom of the channel.
MORTGAGE INTEREST RATES (30-Yr)**
**We watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. (See table.) As buying power shrinks, real estate prices will fall, and sellers will increasingly find that they are upside down with their mortgage.
--
Carl published an article Thursday: Squeezing the Real Estate Bubble.
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 managed to close higher despite yesterday's bearish candlestick. Price managed to move above the 20/50-EMAs. The PMO is bottoming as are Stochastics. The RSI just hit positive territory.
There is a bearish rising wedge on the chart, so any upside will likely end at $26.
UUP Weekly Chart: We see that price was stunted at overhead resistance at $26. You can see three "touches" of that resistance line previously. The weekly PMO is topping, but the weekly RSI is still positive. This appears to be a recipe for more sideways churn.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GOLD Daily Chart: Gold benefited from nervous investors. Gold popped and is nearing overhead resistance at the November highs. The indicators are very favorable.
Price closed within the symmetrical triangle but broke out earlier in the day. Discounts spiked suggesting bearishness among gold bugs. We do want to see high discounts given sentiment is contrarian. The more bearish they are, the more bullish it is for Gold.
GOLD Weekly Chart: We didn't get the breakout from the symmetrical triangle on the weekly chart, but given the prior trend was up, we do expect an upside breakout. The weekly RSI is positive and the weekly PMO is rising.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners broke back above the 200-day EMA, but didn't managed to break the declining trend. This group should do relatively well given Gold prices should continue to rise, but the winds of a bear market could hurt these stocks. Participation has been volatile; it is very bullish right now. We have 100% of Miners with price > 200-day EMAs and the SCI is on a positive crossover its signal line.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Energy is the brightest sector of them all and Crude Oil prices have facilitated that. While we do have a bearish rising wedge and toppy PMO, Stochastics and the RSI are bullish. The likely sanctions on Russia should lead to higher oil prices.
Price is now at an annual high.
USO/$WTIC Weekly Chart: Price is in the process of closing the 2020 gap on USO and $WTIC is hitting multi-year highs. The weekly PMO and RSI may be overbought, but those conditions can persist given the strong bull market Crude Oil is in.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: TLT rallied strongly as the 20-year yield dropped significantly. The indicators are all rising now. It's an interesting dichotomy. Last time the market fell heavily, there was a flight to Bonds that drove yields lower. Will it happen again? The indicators tell us that this isn't out of the question.
TLT Weekly Chart: Falling yields have been pressuring Bonds lower. Last week the long-term rising trend was breached. This week price traded below the trendline and closed lower. The weekly RSI is negative and the weekly PMO just dropped below zero. Look for a test of $130 rather than a rally.
Good luck and good trading! Have a great weekend!
Carl & Erin Swenlin
Technical Analysis is a windsock, not a crystal ball. -- Carl 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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