The market started with a gap up and rally continuation. However, that was it. From that point forward the SPY erased all of the morning gains to finish unchanged on the day. The good news is that it held support at yesterday's highs and the 5-minute PMO turned up and gave us a crossover BUY signal in the last five minutes. The 5-minute RSI is still negative, but at least shows a new rising trend.
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
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.
RRG® Chart ($ONE Benchmark):
Daily: Damage was done to the daily RRG today. Currently the most bullish sectors are XLC and XLF which are in the Leading quadrant and are holding bullish northeast headings.
The rest of the sectors in the Leading quadrant are showing deterioration as southward headings imply. The most bearish would be XLP which is nearing the Weakening quadrant with a bearish southwest heading and XLK & XLRE which now have a bearish southwest headings.
XLV is in the Weakening quadrant and it has a bearish southwest heading.
Weekly: No changes, yesterday's comments still apply:
"The weakest sector is clearly Energy (XLE). It has a strong bearish southwest heading that is taking it further into the Lagging quadrant.
XLB and XLU look suspect. XLB is taking its time leaving the Lagging quadrant given its strong westward heading. XLP is in the Lagging quadrant, but it should hit Improving quadrant very soon. XLU has a strong enough northward heading to get it into the Improving quadrant, but it likely will have to move through Lagging to do it."
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: BUY as of 8/2/2022
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: An upside breakout from a rising wedge is very bullish; unfortunately, today's breakout couldn't be maintained. This formed a bearish filled black candlestick that implies the market will finish lower tomorrow.
The VIX punctured the upper Bollinger Band yesterday on our inverted scale and it's low for the day gave us another puncture. RSI, PMO and Stochastics are bullish.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Highs pared back slightly and we again saw no New Lows. The 10-DMA of the High-Low Differential trying to top again.
Climax* Analysis: After yesterday's breakout, although we were unsure, we decided on an upside exhaustion climax. So far that looks like a good call. There were no climax readings today, but the churn was to be expected.
*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 rose again today, but not enough to erase the negative divergences with price.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
Both the ITBM and ITVM moved further into overbought territory. They are now at overbought extremes. We are seeing a tiny bit of deterioration on PMO BUY signals. Typically these tops precede declines.
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 short-term bias is bullish given we have 90.2% of stocks above their 20-day and 84.2% above their 50-day EMAs. These percentages are much higher than the SCI reading of 67%. This implies that the SCI should continue higher.
The intermediate-term bias is bullish. While the SCI reading of 67% isn't above the 70% bullish threshold, it is healthy and rising quickly.
The long-term bias is bearish but improving. We have 56.4% of stocks with price above their 200-day EMA and that is higher than the GCI reading of 31.6%. The GCI has had a positive crossover its signal line and is rising, albeit very slowly.
CONCLUSION: The majority of our indicators in the short and intermediate terms are rising and bullish. However, they are also, in most cases, very overbought meaning the market is vulnerable. We would expect to see more churn and chop above support given yesterday's exhaustion climax and the VIX's break above the upper Bollinger Band on our inverted scale. A breakdown below support could mean the top to this bear market rally. Overall, manage your positions carefully given this new vulnerability to the downside.
Erin is 60% exposed.
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BITCOIN
Yesterday's comments still apply:
"As with the market, Bitcoin is forming a bearish rising wedge. Currently it is bouncing off the bottom of the pattern. Indicators are mixed. Stochastics are oscillating in positive territory as is the RSI. The PMO is turning up but has been mostly flat as Bitcoin oscillates within the wedge. We would look for another test of the upper bound of the bearish rising wedge followed by a breakdown."
INTEREST RATES
Rates are sneaking back up as declining trends are being broken. Shortest-term yields are finally looking toppy.
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
A bullish engulfing candlestick was accompanied by the RSI moving into positive territory and a PMO crossover BUY signal. Stochastics are rising strongly. Price also broke out of a bullish falling wedge. Time to think about the Interest Rate Hedge ETF (PFIX) which follows the direction of $TNX.
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 broke down considerably yesterday. Price rallied slightly today, but overhead resistance is holding strong. Indicators are very bearish suggesting more downside ahead for the Dollar.
GOLD
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: GLD is unable to break above resistance at the May/June lows. Indicators are bullish but the PMO appears to be decelerating somewhat.
GOLD Daily Chart: The $GOLD chart looks far more bullish given it has had the breakout above the May/June lows. Still the chart looks favorable particularly given the Dollar looks very weak. Discounts are reaching annual highs suggesting bearish sentiment is high. Sentiment being contrarian, this is bullish for Gold.
GOLD MINERS Golden and Silver Cross Indexes: GDX pulled back today, but support at the 20-day EMA held and we didn't see much damage to participation. We still like this industry group.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil continued its rally today pushing price above the 20-day EMA. There is still strong overhead resistance to contend with at the 50-day EMA and July top. However, indicators are looking excellent as the RSI just hit positive territory and the PMO triggered a crossover BUY signal today. Additionally, Stochastics are rising bullishly. This time we expect a breakout to stick.
BONDS (TLT)
IT Trend Model: BUYas of 8/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Price was drifting out of the short-term rising trend. Today it tumbled lower, officially breaking that rising trend. The RSI has moved into negative territory and the PMO triggered a crossover SELL signal today. Stochastics look terrible. Time for Bonds to retreat and interest rates to rise...Interest Rate Hedge (PFIX).
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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