Erin was unable to do DP Diamonds this week due to COVID, but she decided to look for a "Sector to Watch" as she normally does in the Friday Diamond Mine trading room. The Industrial sector (XLI) has some interesting participation and characteristics.
We saw a tiny breakout to finish the week setting up a bullish double-bottom breakout (or you could probably look at it as a triple-bottom breakout). This breakout also had price finish above the 50-day EMA. The RSI is positive and the PMO is now rising sharply. The "Silver Cross" Index (SCI) is rising again. There aren't any signs of life on the "Golden Cross" Index yet, but a reading of 21% isn't horrible. Participation is broadening with 87% of stocks above their 20-day EMA and over two-thirds with price above their 50-day EMAs. There are slightly more stocks with price above their 200-day EMA than stocks with Golden Crosses so we should see the GCI rising again. Stochastics are above 80. Relative strength is on a rising trend since the recent price bottom. There's a good chance we will see XLI challenge overhead resistance around $95.
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® Charts: $ONE Benchmark
Daily: The first sector to hit the Weakening quadrant is XLV, but defensive sectors XLP and XLU aren't far behind. XLI, mentioned in the opening, just reached the Leading quadrant.
XLE is making a comeback alongside XLB. Other sectors with bullish northeast headings are XLF, XLY and XLRE.
XLC and XLK are fading somewhat, but both are firmly within the Leading quadrant.
Weekly: This does appear to be the beginning of a longer-term rally given the improvement in the headings of all sectors with the exception of XLE 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: SELL as of 5/5/2022
SPY Daily Chart: The market was down almost 1%, but no real damage was done. Price remains above the 50-day EMA and support. The RSI is positive and PMO is rising.
Stochastics tipped over but remain above 80. One sign that could point to another day of decline is the VIX getting overbought on our inverted log scale.
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SPY Weekly Chart: The weekly PMO has not been this oversold since the financial crisis, and it has turned up, confirming the price breakout from the falling wedge. This says that the rally could be significant, and makes a case that the bear market may be over. But, let's not overlook the fact that weekly PMO direction changes are not infallible signals.
New 52-Week Highs/Lows: Still no real expansion in New Highs with only a slight increase in New Lows. Overall readings have been flat this week.
Climax Analysis: There were marginally climactic readings on SPX Net A-D Volume and SPX DOWN/UP Volume Ratio, so we will classify today as a downside initiation climax. Note that SPX Total Volume did not confirm.
*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 OVERBOUGHT.
STOs topped in overbought territory. However, we still have 85% of the index with rising momentum; certainly enough to carry price higher.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL to OVERBOUGHT.
The ITBM and ITVM have finally hit positive territory and are neutral. 84% of the index have PMO BUY signals. That is an overbought reading and typically it doesn't stay there very long.
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.
This table is sorted by SCI values. This gives a clear picture of strongest to weakest index/sector in terms of participation.
The award for "most improved" this week goes to Consumer Discretionary with the QQQ being a runner-up.
The short-term bias is bullish given there are far more stocks above their 20/50-day EMAs than there are Silver Crosses. This tells us that the SCI will continue to rise.
The intermediate-term bias is neutral. The SCI is rising, but remains at a low 21%.
The long-term bias remains bearish as there are fewer stocks with price above their 200-day EMA than there are Golden Crosses.
CONCLUSION: With short-term indicators topping alongside a mild downside initiation climax, we should prepare for a possible drop below support. Given the short-term bias is quite bullish, we don't expect a decline to take root. Wednesday next week is the FOMC announcement. Expectations are for a 75 basis point increase in rates. Typically trading going into these announcements is flat as investors anticipate the comments that accompany the rate adjustment. This is probably why the advance fizzled on Friday.
Erin is 40% exposed to the market.
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BITCOIN
Bitcoin made an attempt at moving past the 50-day EMA, but failed. The indicators are okay. The RSI is positive and the PMO is still rising. Stochastics have unfortunately topped, but we note that volume on the last three days of selling has been contracting. We could see Bitcoin finally breaking out, but today's failed breakout doesn't inspire confidence.
This chart shows where some of the support/resistance lines come from.
INTEREST RATES
Long-term rates have pulled back significantly. Even the 1-month and 3-month yields pause today.
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
Yesterday's bearish engulfing candlestick played out as expected with a decline. We weren't prepared for it to be so forceful. Now it is on support again. The PMO has topped below the signal line which is very bearish. Stochastics turned over before challenging 80 and the RSI is falling, not overbought in negative territory. Additionally, there is a bearish head and shoulders pattern to contend with.
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 ticked up from 5.51 to 5.54.
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 finally on the outs as the prior week's decline saw continuation this week. Indicators are very bearish so we expect this decline to continue. We would look for the intermediate-term rising trend to be tested.
UUP Weekly Chart: The rally overall has been parabolic. When price hit the 2020 top, that's when the run up stalled. The breakdown has been manageable so far, but generally we see price crash when the top of the parabolic run is over. Given global disarray, we don't think we'll see the bottom drop out of the Dollar; a decline or consolidation makes the most sense.
GOLD
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GOLD Daily Chart: You would think that the Gold chart would look especially bullish given the bearish Dollar, but Gold really hasn't taken advantage. Investors are still very bearish on Gold as represented by the high discounts on PHYS.
The indicators are showing improvement with a PMO bottom in oversold territory and Stochastics and the RSI rising.
GOLD Weekly Chart: The long-term rising bottoms trendline was nearly compromised this week. Gold did manage to cling to support at the 2021 lows. The weekly PMO is still very bearish, but the weekly RSI is making a move higher. This is an excellent place for Gold to begin rallying.
GOLD MINERS Golden and Silver Cross Indexes: The short-term declining trend was broken today but price fell back and closed near its lows. Support is holding, but we're still waiting for signs of life in participation. The PMO could give us a crossover BUY signal next week. We wouldn't suggest fishing here yet.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: It sure looked like the rally was back on for Crude Oil and Energy, but this week price failed at overhead resistance.
The PMO topped beneath its signal line and the RSI remains in negative territory. Stochastics were improving, but have halted their rise. We could be looking at a reverse head and shoulders in the short term, but it is too early to count on that bullish pattern.
USO/$WTIC Weekly Chart: The weekly chart shows us that USO is sitting on strong support, but in the longer term this looks very toppy. The weekly RSI hit negative territory and the weekly PMO is declining out of very overbought territory. This is a pivotal point for Crude Oil. A drop below support could mean $60 for USO.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The drop in yields spurred TLT to breakout above the April low and July highs. It is already up against resistance at the May top, but given the PMO just entered positive territory, the RSI/Stochastics are positive and rising, we would look for a breakout.
TLT Weekly Chart: The weekly PMO is nearing a positive crossover in oversold territory. The weekly RSI is improving as well. Currently resistance is being met at the 17-week EMA. This is the best we've seen out of TLT this year and we think the rally should continue.
Good Luck & Good Trading!
Erin Swenlin And Carl 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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