When the 50-day EMA crosses up through the 200-day EMA, it is commonly known as a Golden Cross, because it infers a positive long-term price trend. Our Golden Cross Index (GCI) shows the percentage of stocks in a given index with a golden cross condition. This chart shows the GCI readings for the S&P 500 Large-Cap, S&P 400 Mid-Cap and S&P 600 Small-Cap Indexes, which are (rounded) 32, 25 and 23, respectively. We consider a reading below 50 to indicate a bear market, and we are well below that in all three groups. Nevertheless, the readings are still not as low as they got during the 2020 Bear Market. Note how all the GCIs dropped lower in 2021 (negative divergence) as the market reached all-time highs.
For years, we have used the 20-day EMA and 50-day EMA upside crossover as an indication of intermediate-term bullishness (we call it the "Silver Cross," indicating that it is a companion for the Golden Cross Index), and we have created the Silver Cross Index (SCI) to reflect the intermediate-term condition of market indexes. This chart shows the SCI readings for the S&P 500, 400 and 600 Indexes, which are 10, 12 and 16 respectively. Again, those readings are not as bad as 2020, but they are dismal nonetheless.
For the last four days, the market has been rallying, so we will probably see both the GCI and SCI turn up soon. With these and other indicators being at such oversold levels, the rally could be quite persistent. We shall see.
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 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:
RRG® Daily Chart ($ONE Benchmark):
Given the overall bear market environment, it isn't surprising to see all of the sectors in the Lagging quadrant. What is very interesting is that all but XLE are starting to curl up toward the Improving quadrant (not shown, but above Lagging quadrant). In particular, three defensive sectors are closer than the others to the Improving quadrant: XLP, XLV and XLRE. This RRG clearly shows that short-term strength is upon us.
RRG® Weekly Chart ($ONE Benchmark):
In the long term, all sectors are showing the effects of a bear market. All have bearish southwest headings with the exception of Technology (XLK). This surprises us given the daily RRG is still showing a negative southwest heading for XLK. Just remember that XLK is still Lagging, but a bear market rally should see the sector continue toward the Improving quadrant given it is the primary driver of the overall market.
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: SELL as of 5/5/2022
SPY Daily Chart: The market had a nice breakout today, but the SPX Total Volume concerns us because it could be a blowoff -- note a similar volume spike at the end of last month. A one-day move of over +3% seems like typical bear market excess. Some churn next week wouldn't be a bad thing, but let's be alert for a reversal.
It is encouraging to see indicators firming up and a close above the 20-day EMA.
SPY Weekly Chart: The falling wedge on the weekly chart implies an upside breakout, an action that could extend the current rally enough to convince investors that the bear market was over. A bull trap.
New 52-Week Highs/Lows: No New Lows, but conversely not many New Highs.
Climax Analysis: Today's climactic action follows the upside initiation climax on Tuesday, so we must designate it as an upside exhaustion climax, which gives more weight to today being a blowoff.
*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 at their core exhaustion events; however, at price pivots they may be initiating a change of trend.
Short-Term Market Indicators: The short-term market trend is UP and the condition is MILDLY OVERBOUGHT.
STOs thrust upward today, confirming the rally. The problem is that the STO-B and %PMOs Rising are now overbought, particularly for a bear market.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
We are finally seeing both the ITBM and ITVM contracting. This week only the ITBM was rising so this could mean a rally continuation. When these same indicators topped, it signaled the end of the last bear market rally.
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 following table summarizes participation for the major market indexes and sectors. The 1-Week Change columns inject a dynamic aspect to the presentation.
The following table summarizes participation for the major market indexes and sectors. The 1-Week Change columns inject a dynamic aspect to the presentation.
Energy and Utilities were the biggest losers this week, shaving their IT Bias by -43 and -83 respectively.
This table is sorted by SCI values. This gives a clear picture of strongest to weakest index/sector in terms of participation.
Energy still tops the list, but it has lost much of its momentum and now has a bearish bias.
The short-term bias is bullish given the large percentage of stocks above their 20-day EMA versus the SCI reading.
The intermediate-term bias is still bearish. The SCI is flat and has a bearish reading of only 11%.
The long-term bias is bearish as the GCI is at a low 31% with %Stocks > 20/50-day EMAs being lower than the GCI reading.
CONCLUSION: Assuming that today wasn't a blowoff, we're looking good for a continuation of the rally; however, a new earnings season begins next Friday, and if there was ever a time to be worried about some setbacks, that would be one of them. Additionally the overall economic and global environment is unchanged. We do see indicators confirming today's breakout so we will continue to be cautiously optimistic, but on the lookout for a possible bull trap next week.
Erin is 15% exposed to the market with 85% in cash.
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BITCOIN
After dipping below $20,000 over the holiday weekend, Bitcoin regained support at $20,000. Indicators are showing slight improvement, but not enough to expect the end of Bitcoin's dastardly bear market. We could see some consolidation. We do not expect a big breakout.
INTEREST RATES
Rates trended lower this week with long-term rates in a declining trend.
The Yield Curve Chart from StockCharts.com shows us the inversions taking place. The red line should move higher from left to right. Inversions are occurring where it moves downward.
10-YEAR T-BOND YIELD
$TNX is making it difficult. Price action and indicators suggest further decline, but it hasn't lost the rising trend yet. It is traveling within a bearish rising wedge so the expectation is a breakdown. We expect to see it drop to 2.7%.
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. As buying power shrinks, home prices will come under pressure.
--
This week the 30-Year Fixed Rate rose from 5.78 to 5.81.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP is technically showing a bullish cup with handle pattern, but really, last Friday's rally should have been the breakout move so we do think the pattern is highly suspect. We would look to the large bearish rising wedge that implies a breakdown below the 50-day EMA. The PMO should trigger a crossover SELL signal barring a big rally on Monday.
UUP Weekly Chart: The rising wedge is visible on the weekly chart. Price is now up against overhead resistance at the 2020 top. Intraday, the 2020 top is near $29, but the actual closing price was closer to $28. Price has ventured above that level, but has yet to close above it. The weekly PMO is trying to top in very overbought territory. The RSI remains positive, but is in decline. The Dollar is ripe for a downside reversal.
GOLD
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: BUY as of 1/12/2022
GOLD Daily Chart: Gold has not been able to take advantage of the weak Dollar this week. It remains in a trading range. This week GLD was unable to close above the 20-day EMA. The RSI is negative and Stochastics topped beneath net neutral (50). The PMO is clinging to a crossover BUY signal. We expect more consolidation unless we see the Dollar fall apart.
Discounts had been paring back suggesting investors are more bullish on Gold, but that isn't reflected in price yet. Today discounts expanded so sentiment is waffling.
GOLD Weekly Chart: Gold continues to hold onto the long-term rising trend drawn from the 2020 low. The weekly indicators are ugly with the weekly RSI falling in negative territory and the weekly PMO declining on a crossover SELL signal. We are bullish on Gold in the long term based on economic and market conditions, but the trend needs to hold up. Otherwise, price is vulnerable to a decline to $1700.
Erin owns GLD.
GOLD MINERS Golden and Silver Cross Indexes: Miners are bouncing off important support at $28. While this is encouraging, the declining trend is still intact and participation is still a flat line given the SCI is at 0% and no stocks have price above their 20/50/200-day EMAs. A rally in Gold might spur a breakout move, but for now we would avoid this group.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Like Gold, USO is clinging to an intermediate-term rising trendline. Support is also holding at the mid-May low. Stochastics and the RSI are showing some improvement, but the PMO suggests there is more downside to endure.
USO/$WTIC Weekly Chart: Given the severity of the decline in Crude Oil, the drop doesn't look that horrible on the weekly chart. However, the indicators are starting to show quite a bit of deterioration. The weekly RSI is positive but in decline. The weekly PMO nearly triggered a crossover SELL signal. The correction in Energy and Crude Oil doesn't appear to be finished yet.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: Bonds broke out on Wednesday and they are currently holding above support despite today's decline. The indicators are mixed. The RSI is negative and falling, but the PMO and Stochastics are on the rise. We believe that rates are on their way down and that will bolster TLT.
TLT Weekly Chart: Price is rebounding off strong support at about $108. The indicators are still negative. The weekly RSI is oversold, but moving sideways. The weekly PMO is beginning to decelerate somewhat in extremely oversold territory. While this is a strong support area, TLT is still vulnerable to another decline to the lower support level at $105.
Good Luck & Good Trading,
Carl Swenlin and 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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