The recent rally, particularly on aggressive sectors like Technology (XLK), Consumer Discretionary (XLY) and Communications Services (XLC) helped XLK trigger an IT Trend Model "Silver Cross" BUY signal. You'll note on XLY below the XLK chart. It will trigger its own Silver Cross BUY signal tomorrow.
XLK looks very bullish right now given the positive RSI that isn't overbought, the rising and positive Price Momentum Oscillator (PMO) and Stochastics staying above 80. Participation is still shallow, particularly in the long term. The Golden Cross Index (GCI) is at 48%. 70% or higher is bullish. Additionally there are only 48% of stocks above their 200-day EMAs which means the GCI will have difficulty reaching that 70% level. The short-term bias is very bullish given there is a much higher percentage of stocks above their 20/50-day EMAs as compared to the SCI.
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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® Daily Chart: It's a rather messy short-term RRG right now. In my opinion, the strongest sectors are XLK, XLY and XLB (which just reentered the Leading quadrant). Runner-ups would be XLU which is coming from the Weakening quadrant toward Leading. XLP which has just reentered the Improving quadrant from Lagging. XLC which has a bullish northeast heading and is headed toward Leading. And, XLRE which has a bullish northeast heading, but is still "Lagging".
XLE is mostly neutral given it is only in the Weakening quadrant and isn't that close to Lagging yet. That leaves very bearish XLF, XLI and XLV which are traveling further into the Lagging quadrant.
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: The SPY has bottomed well above the 20-day EMA. The VIX interestingly spread the Bollinger Bands on upside volatility which I believe is a good sign. Normally we look for a puncture of the upper Band on our inverted scale as a possible tipping point, but we do note that current readings can be considered overbought where they are right now.
Price still remains below overhead resistance, but indicators are still fairly positive given the RSI is above net neutral (50), the PMO is rising and not overbought, and Stochastics remain above 80.
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S&P 500 New 52-Week Highs/Lows: I find this chart very troubling. New Highs continued to contract today despite the strong upside move. Additionally, we are seeing the 10-DMA of the High-Low Differential topping.
Climax* Analysis: No climaxes today.
*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 UP and the condition is NEUTRAL.
I had expected to see a nice expansion in participation based on today's strong rally, but instead we saw little or no improvement. %Stocks > 20-day EMA did tick up and is above our 70% bullish threshold which is positive, but the increase was minute. %PMOs Rising fell somewhat... we definitely want to see more stocks with positive momentum after a rally like today's, but instead it deteriorated.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
Both the ITBM rose today with the ITVM staying flat. Both are very overbought. We lost a few more PMO BUY signals which on a strong rally shouldn't happen.
PARTICIPATION and BIAS Assessment: 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 market bias in the short term is bullish given we have a higher percentage of stocks above their 20/50-day EMAs than SCI percentage. This tells us that the SCI has an opportunity to continue rising.
The SCI is still at a low 54% but it is rising. I would consider the intermediate-term bias to be neutral to somewhat bullish.
The long-term bias is neutral to bearish. The GCI is reading below 70%, but we have a lower percentage of stocks above their 200-day EMA. This will make it hard for the GCI to continue rising. It is positive to see the GCI crossover its signal line, but overall we still see a more bearish bias in the longer term.
CONCLUSION: The bias in the short term is bullish and this rally was a nice bounce above the 20-day EMA. The STOs are in neutral so they have room to expand upward. We do need to see them turn back up though! The only problems I see are when the timeframe expands to the intermediate and long terms. IT indicators are overbought and the long-term bias is still bearish. No need to close positions right now, but they do need to be managed in the very short term or have stops set.
I am still 15% exposed. I could see expanding this, but not until I catch up from my vacation and see the STOs rising again.
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BITCOIN
We have a cup and handle pattern with the handle being formed by the consolidation and slight declining trend of price since breaking above the February/March highs. The RSI is positive, but the PMO is flattening. Stochastics are flattening again as well. I expect to see more sideways movement along the 200-day EMA.
INTEREST RATES
Rates are rising again overall which makes bond buying less attractive.
10-YEAR T-BOND YIELD
It appeared $TNX was going to drop below support at 23. However, now we see that the PMO is trying to turn up above its signal line and Stochastics are bottoming above net neutral (50). The RSI remains positive. This is starting to look like a bull flag.
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 is consolidating sideways, but readying for another test of overhead resistance. The PMO is beginning to rise again alongside Stochastics. The RSI is positive so we could see a breakout this time around.
We have a long-term rising trend channel on the one-year daily chart so a trip to the top of that channel appears imminent.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Like the Dollar, Gold is consolidating sideways. It is holding above the March lows and has even stronger support available at the November high. The problem is indicators are very neutral, giving us no real hints on whether we will get a breakout or breakdown from this trading range. I would expect more sideways movement for Gold until the indicators ripen.
GOLD Daily Chart: Friday we had a premium on PHYS instead of a discount. This tells us that investors are still quite bullish on Gold. As noted above, I still expect to see more sideways consolidation or churn.
GOLD MINERS Golden and Silver Cross Indexes: GDX broke out as expected from the symmetrical triangle. Remember those triangles are "continuation" patterns and the prior trend was up. Friday we saw an annual closing high. Today appears to be a pullback toward the breakout point. Participation is still very strong for Gold Miners and with XLB looking bullish on the daily RRG, I expect GDX will continue to rise.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: We have a symmetrical triangle on USO and given the prior trend was up, we expect an upside breakout soon. The RSI is positive and the PMO is turning up. Stochastics are still a problem so it may take another day or two before we see a breakout.
BONDS (TLT)
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT is failing at the 20-day EMA. It didn't even make it to overhead resistance at the February low before turning down. The RSI is negative and with the 50-day EMA so far below the 200-day EMA, TLT is in a bear market. So despite a rising PMO and Stochastics, we are expecting price to fail here.
Good Luck & Good Trading!
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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DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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