The lead should really be about the market's accelerating decline, but we will cover that in more detail below. For now, let's look at the Materials Sector, which earlier this week switched from NEUTRAL to BUY. That didn't last long since today the 20-day EMA crossed back down through the 50-day EMA, generating a new IT Trend Model NEUTRAL signal. Because of the long trading range, this is the eighth signal change in the last year. Given it is range bound, we will want to revisit the sector when it hits the support zone between the July/September 2021 lows and March lows.
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 ($ONE Benchmark):
We haven't had to go into gory detail on what each sector is up to because they have all been in deterioration mode. XLV reached the Weakening quadrant today. XLU and XLE aren't far behind.
None of the sectors have bullish northeast headings. There are plenty with bearish southwest headings: XLC, XLI, XLK, XLP, XLB, XLU and XLE.The remainder, XLY, XLP and XLRE still have a bearish southward component to their headings. It's not a pretty short-term picture.
RRG® Weekly Chart ($ONE Benchmark):
The weekly RRG hasn't changed so last week's comments are valid. The bear market is clearly in force:
"The weekly RRG shows all sectors with bearish southwest headings with the exception of XLE which is directionless. We have short-term bullishness (daily RRG), but intermediate-term weakness (weekly RRG)."
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: What a spectacular breakdown we witnessed this week. The SPY dropped in waterfall fashion -6.4% from Wednesday's close. It is obvious that there is now a setup for a potential double bottom, but we know how this last one turned out. We are not in love with that idea, but we need to be prepared for the possibility.
The RSI is negative and Stochastics are vertically dropping into negative territory. However, the most bearish indicator is the PMO. It topped WELL-BELOW the zero line. We can see how that worked out in February and early March after failed attempts to rally. The VIX tumbled but didn't puncture the lower Bollinger Band on our inverted scale. This leaves more downside before a puncture of the lower Band. Typically punctures lead to upside reversals. We aren't so certain about a puncture this time as the VIX readings are not oversold.
SPY Weekly Chart: Support at $380 is obvious. What isn't so obvious is whether it will hold that level. The weekly PMO is oversold, but is accelerating downward alongside a negative and falling weekly RSI. We wouldn't look for a bear market trough until we test 2020 highs. Depending on economic conditions, that level could be broken too.
The monthly PMO has exceeded the 2019 and 2020 lows, and on that basis is quite oversold; however, a 25-year chart give us an idea of how bad it can (and probably will) get.
New 52-Week Highs/Lows: New Lows expanded greatly which is no surprise. The 10-DMA of the High-Low Differential topped yesterday and is nowhere near overbought levels.
Climax Analysis: Today we got another downside exhaustion climax, but as with yesterday's, the downward momentum may not yet be exhausted.
*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 DOWN and the condition is OVERSOLD.
There's no denying these indicators are very oversold, but they are not as oversold as they can get.
Looking at a longer-term chart, we see that STOs can stretch further to the downside.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
This chart is frightening. These indicators are neutral. They have PLENTY of downside they can absorb. Look at the levels they were at last month and earlier in the year. The ITBM/ITVM aren't even in negative territory.
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.
Surprisingly, the last two days of sharp decline did not reverse all of the positive SCI and GCI moves.
This table is sorted by SCI values. This gives a clear picture of strongest to weakest index/sector in terms of participation.
I don't think we have to parse what the bias is in all three timeframes. It is very bearish across the board. The SCI had a negative crossover. The GCI turned down and %Stocks > 20/50/200-day EMAs tumbled back into oversold territory.
CONCLUSION: Greg Morris in his book "Investing with the Trend" shows a table of all bear markets with duration from top to bottom. The Dotcom bear market lasted 30.33 months with a decline of -49.15%. The Housing Bubble bear market lasted 16.9 months with a decline of -56.78%. This is not over by a long shot based on the indicators and similar economic and market conditions. Younger investors haven't experienced firsthand the excruciating grind lower of typical bear markets. "Old Timers" are getting ready for the long haul downward. Be careful out there.
Calendar: (1) FOMC meeting next week with the announcement on Wednesday. Expectation is for another 50 basis point hike; (2) Options expiration next week. It is an end-of-quarter expiration, so expect very high volume on Friday. We normally expect low volatility toward the end of the week as well. We shall see.
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BITCOIN
Bitcoin continued to cling to support within the trading range that began last month. Indicators are negative with the PMO topping well-below the zero line. The RSI and Stochastics are negative and falling. Cryptocurrencies are only hair away from complete disaster.
INTEREST RATES
Interest rates marched higher with the 20-year yield breaking above overhead resistance. Prepare for yields to move much higher.
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 spiked, closing on another 52-week high. The PMO generated a crossover BUY signal and the RSI is positive/rising and not yet overbought. Stochastics are strong. We see the 10-year treasure yield moving much higher. For those who don't know, there is an interest rate hedge ETF (PFIX). You might want to check out the chart.
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 5.09% to 5.23%.
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 rallied into the end of the week, finishing with a big gap up. Indicators are firming up suggesting overhead resistance at the May top will be tested soon.
The long-term rising trend is intact.
UUP Weekly Chart: The longer-term rising trend is also staying intact. The weekly RSI is positive and not yet overbought. The weekly PMO has bottomed above its signal line. Despite being very overbought, the Dollar should test the 2020 highs.
GOLD
IT Trend Model: BUY as of 5/3/2022
LT Trend Model: BUY as of 1/12/2022
GOLD Daily Chart: Gold didn't breakout, but it might as well have. On a day when the Dollar finished strong, Gold finished stronger. Given the natural reverse correlation, this is very significant. There is a bullish engulfing candlestick. The RSI just moved into positive territory and Stochastics turned up above net neutral (50). Volume was very high.
Discounts didn't contract, but we expect to see that soon as investors get bullish on Gold.
GOLD Weekly Chart: This rally has given the weekly chart a boost. The weekly RSI is now positive and the weekly PMO is turning up. Price is riding a long-term rising trend. We expect all-time highs to be reached and possibly exceeded.
GOLD MINERS Golden and Silver Cross Indexes: We've been bearish on GDX since the breakout above the 20-day EMA failed. Then the group received a "death cross" of the 50/200-day EMAs. The picture is completely different today, particularly given Gold is ready to blast off. The RSI is nearing positive territory. The PMO has turned back up. %Stocks > 20-day EMA spiked today. We even saw a few more stocks overcome the 50/200-day EMAs. The short-term bias on Gold Miners is very bullish.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil pulled back to finish the week, but no support levels were lost. The RSI was able to move out of overbought territory. The PMO decelerated slightly but otherwise was unscathed. Stochastics turned down but are above 80, suggesting internal strength. Worst case is a continued pullback to support at 82.50.
USO/$WTIC Weekly Chart: Last week price closed above the overhead resistance zone and this week it traded completely above that new support level. The weekly RSI is overbought, but not exceedingly so. The weekly PMO is turning up above the signal line. We don't see an end to rising Crude Oil prices technically or fundamentally for months ahead.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: With yields rising, Bonds are languishing. TLT is holding support, but given the nearing PMO SELL signal, negative RSI and Stochastics topping below 20, we do not see a rally in the short or intermediate terms.
TLT Weekly Chart: Support in the long term is holding up, but we note that the weekly RSI is falling below 20 and the weekly PMO accelerating lower. With the 20-year yield closing at new 52-week highs, $105 is the next stop of the trip much lower.
Good Luck & Good Trading,
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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