Energy (XLE) led the charge today finishing up 5.65%. The runner-up, Materials (XLB) was "only" up 3.25%. That's a 1.4% difference which is substantial. Erin discussed with Diamond subscribers the reverse island that could be shaping up on the chart. Unfortunately, we don't know if it's an island until it is. Today's gap up move confirmed the pattern did, in fact, exist.
The breakout was impressive; not only did XLE gap up, it popped above resistance at the early September lows as well as the 20/50-day EMAs. Today's breakout certainly improved participation of stocks above their 20/50-day EMAs, but the Silver Cross Index (SCI) which tells us how many stocks have a 20-day EMA above the 50-day EMA, didn't see much improvement. That makes sense as we wouldn't expect a bunch of stocks to see a "silver cross", particularly if the sector itself hasn't seen a "silver cross" of the 20/50-day EMAs.
However, with such improvement in %Stocks > 20/50/200-day EMAs, those silver crosses will be soon appearing. Today rally pushed the PMO back up and moved the RSI above net neutral (50) and into positive territory. Stochastics are now rising. Today's breakout move with the gap up suggests this sector is ready to perform again. It is range-bound, so look for price to test $85. We'll see how the rest of the indicators are reacting before we look toward another breakout... but it's looking pretty good.
The DecisionPoint Alert Weekly Wrap presents an end-of-week assessment of the trend and condition of the Stock Market, the U.S. Dollar, Gold, Crude Oil, and Bonds. The DecisionPoint Alert daily report (Monday through Thursday) is abbreviated and gives updates on the Weekly Wrap assessments.
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MAJOR MARKET INDEXES
SECTORS
Each S&P 500 Index component stock is assigned to one of 11 major sectors. This is a snapshot of the Intermediate-Term (Silver Cross) and Long-Term (Golden Cross) Trend Model signal status for those sectors.
RRG® Charts ($ONE Benchmark)
Daily: The daily RRG is seeing great improvement. A week ago all of the sectors were moving in the bearish southwest direction. XLU and XLY are currently the only sectors holding bearish southwest headings.
Most bullish would be XLK which is about to enter the Improving quadrant (not shown) with XLV and XLP not too far behind. XLE is quickly reversing which is no surprise given the recent rally.
We also like the look of XLC, XLB and XLI which are traveling more northward v. west ward like XLF and XLRE.
Just remember all of these sectors are in the "Lagging" quadrant, the worst quadrant on an RRG.
Weekly: Rather than improving, the weekly RRG is still reflecting the internal weakness of the market. All sectors with the exception of XLE have strong bearish southwest headings. XLE may still hold a northward component in its heading, but the westward component should move it out of the Leading quadrant and into Improving.
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: On Friday, SPY broke down from a bearish reverse flag formation. That appears to have been a bear trap, as today price reversed and broke up through the top of the bullish falling wedge. SPX Total Volume contracted from Friday's blowout levels, but it was still good enough to confirm the breakout.
The PMO is still in decline but decelerated significantly on today's rally. While Stochastics are turning up they still aren't rising out of oversold territory. This indicator is more sensitive than both the RSI and PMO so we want to see it rising more strongly. The VIX is still elevated but is retreating. On our inverted log scale, the VIX remains beneath its moving average, so the market is still internally weak.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Lows, not surprisingly, contracted again, but we're not seeing New Highs just yet. It's early. Very favorable is the 10-DMA of the High-Low Differential beginning to curl back up.
Climax* Analysis: Today we had strong and unanimous climax readings resulting in an upside initiation climax. SPX Total Volume contracted, but was well above the one-year daily average, confirming the climax.
*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 SOMEWHAT OVERSOLD.
As we would expect, STOs continued to rise today. The most noticeable improvement is on %PMOs Rising. Now over half the market have rising PMOs. We like to see it above 70%, but it is on the way.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is EXTREMELY OVERSOLD.
This is what we have been waiting for, confirmation by intermediate-term indicators. Both the ITBM and ITVM have bottomed. While we only have 6% on PMO BUY signals, we do note that %PMO BUY signals moved above the signal line.
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 bias remains bearish in all timeframes, but we are seeing improvement as %Stocks > 20/50/200-day EMAs are finally expanding.
We are looking for %Stocks > 20/50-day EMAs to be higher than the SCI and %Stocks > 50/200-day EMAs to be higher than the GCI. We're not there yet.
CONCLUSION: Price broke out from from the bullish falling wedge after a head fake on Friday. Getting bullish follow-through on any signal is very bullish as most of the bullish signals have failed to produce in this bear market. Most significant today is the reversal of the ITBM/ITVM. They've been an excellent barometer to measure the likelihood of follow-through on price bottoms. Our primary indicators, the PMO, Stochastics and the RSI, are improving, but aren't THAT bullish yet. We are bullish for now, but believe caution should be exercised until our primary indicators begin to confirm this price bottom.
Erin is 10% exposed and released her hedges.
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BITCOIN
Bitcoin continues to travel within the trading range between $18,000 and $20,500. While they are angling up, they aren't showing much enthusiasm and remain relatively flat. We don't see price breaking from this trading channel anytime soon, but we are seeing price back above the 20-day EMA which is encouraging.
INTEREST RATES
Interest rates are pulling back after, in some cases, parabolic moves. This is a natural consequence of a parabolic move.
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
The 10-Yield correcting from the parabolic advance, penetrated the rising trend line today, but it closed on the line, so it is possible that the correction is over. We'll know more when 3.5% is tested.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Like $TNX, the Dollar has resolved a short-term parabolic advance. The PMO and Stochastics are breaking down. Typically we look for price to move back to the previous basing pattern after a parabolic breakdown. That would likely take price back to the trading range between $29.25 and $29.75.
GOLD
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: The Dollar's misfortune has been Gold's friend. Price broke out strongly on GLD today, pushing it above the 20-day EMA and prior resistance at the July/August lows. The RSI is back in positive territory and the PMO triggered a crossover BUY signal.
GOLD Daily Chart: Discounts are still very high despite contracting somewhat. High discounts means very bearish sentiment. Sentiment being contrarian, we have been waiting for an upside reversal. We may finally be seeing the beginning of a longer-term rally.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners look particularly enticing. We finally saw some follow-through on the breakout above the 20-day EMA from Friday. Indicators are positive and participation is improving greatly. This has the SCI turning back up already. It is at a level we haven't seen in months. If Gold continues to rally alongside the market, Gold Miners will benefit significantly.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO rallied but formed a bearish filled black candlestick. Price was above the 20-day EMA, but pulled back before the close. Still, we can't complain about a 4% rally. This certainly lifted the Energy sector, but Coal is helping that sector as well. As Carl discussed in today's DecisionPoint Trading Room, winter months are approaching and typically the demand pushes prices higher.
BONDS (TLT)
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With the pullback in yields, particularly the 20-year yield in TLT's case, Bonds are beginning to rise somewhat. Sensitive Stochastics aren't confirming this rally and the PMO, while rising, is still rather flat. Look for TLT to rally a bit more, but we believe the rally in rates is only on hiatus and will be pressing Bonds down again soon.
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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