With the market on the cusp of a rally, we thought it time to walk through our Silver Cross Index (SCI) and Golden Cross Index on the broad markets (SPX, NASDAQ and NYSE). Before we look at each chart, let's review what Golden and Silver Crosses are.
Most people are familiar with golden cross. It is when the 50-day moving average moves above the 200-day moving average. It can be an SMA or an EMA. We use EMAs. The Golden Cross Index (GCI) measures how many stocks within the named index have a 50-day EMA above the 200-day EMA.
The silver cross is something we came up with to describe when a 20-day moving average crosses above the 50-day moving average. Again, we use EMAs. The Silver Cross Index (SCI) measures how many stocks within the named index have a 20-day EMA above their 50-day EMA.
We'll start with the shorter-term SCI chart. In all cases, the SCIs are oversold and at levels we saw before not only the 2020 bear market recovery, but also before the summer bear market rally. All three are rising on positive crossovers. In the case of the SPX and Nasdaq, we have positive divergences with price lows leading into this bear market rally.
The GCI chart is less bullish. On the bright side, readings are oversold, though not as oversold as we've seen previously. Given the up and downs of the GCI all along the way down, we do see positive divergences leading into the current price low. This chart suggests to us that in the longer term, we are still in a bear market.
Conclusion: We do believe the market is about to pop, but in the meantime we will likely experience some chop and churn as it angles higher. The SCI tells us with its positive divergences and rise after signal line crossovers, the short and intermediate terms are bullish. The long-term picture is less bullish and suggests this isn't the beginning of a new bull market. The bear may start hibernating, but it is still alive and well.
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 ($ONE Benchmark):
Interestingly, all of the sectors except XLE have bullish northeast headings on the short-term daily RRG. While XLE is falling, it is on the right side of the chart where it has a bullish configuration. It is also still firmly in the Leading quadrant.
This RRG tells us in the short term, there is a big reversal and turnaround occurring. This fits well into our stance that we are on our way to a bear market rally.
RRG® Weekly Chart ($ONE Benchmark):
The weekly RRG tells us that this rally is indeed a "bear market rally". The sectors are still underperforming. Every sector except Energy (XLE) has bearish southwest headings. XLF is in the Improving quadrant, but it is far from improving right now as it nears the Lagging quadrant.
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: SELL as of 9/8/2022
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: This was the last trading day before options expiration. Our expectation of low volatility today and yesterday was not realized. It happens. Why do we expect low volatility? We think that the "powers that be" try to keep things quiet while they roll into new options positions. Just a guess. At any rate, our expectation of a continued rally was realized in spades.
Monday also looks promising given the bullish engulfing candlestick that formed today. The RSI has now moved into positive territory above net neutral (50). The PMO is rising and Stochastics tipped back up in positive territory. The VIX is getting close to puncturing the upper Bollinger Band on our inverted scale and that generally leads to some decline. The true test will be the next declining tops trendline drawn from the August top and the 50-day EMA. We like the setup and believe we will see that breakout. It just may take its time getting there.
SPY Weekly Chart: Price has turned up, but the weekly PMO has not quite bottomed. It has decelerated and it looks promising.
New 52-Week Highs/Lows:SPX New Lows expanded today, even though price closed up. This is okay because New Lows are measured intraday -- the market was down at the open.
Climax Analysis: The previous climax was an upside exhaustion on Tuesday. Then we got two days of pullback to absorb the exhaustion. Today there were strong and unanimous climaxes giving us an upside initiation climax. This is an excellent input toward a rally outcome. SPX Total Volume surged in confirmation.
*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 SOMEWHAT OVERBOUGHT.
The STOs pulled back yesterday, but resumed their rise today. The percent of stocks with rising momentum expanded. That indicator is somewhat overbought, but it can certainly accommodate more rally. Also note that overbought conditions can persist. During the July/August rally you can see that these readings remained elevated.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL to OVERSOLD.
We list the intermediate-term trend as "DOWN" because the declining trend drawn from the March top has not yet been broken. The condition of the ITBM/ITVM is oversold, but %PMO Crossover BUY Signals is Neutral. We like the positive divergences that led into this market bottom.
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.
XLP saw the biggest change in the SCI, but the GCI had the second highest decline of the group, basically nullifying the SCI and presenting a negative -3 IT Bias. Golden Miners may be listed with the strongest IT Bias, but we know that overall that industry group hasn't been performing very well and the GCI is 0%.
This table is sorted by SCI values. This gives a clear picture of strongest to weakest index/sector in terms of participation.
Not surprisingly, XLE has the strongest SCI reading. Despite a rocky road in Crude Oil, this sector has been performing very well and holds excellent participation. XLRE looks terrible with none of its members having a 20-day EMA above the 50-day EMA for a 0% SCI reading.
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. We have far more stocks above their 20/50-day EMAs than Silver Crosses. This tells us that participation is beginning to build and hence a bullish outlook.
The intermediate-term bias is bullish given the ST bias is bullish and the SCI has crossed above its signal line, rising out of oversold territory. It would be extremely bullish if the SCI reading were higher.
The long-term bias is somewhat bearish. While we finally have more stocks above their 50/200-day EMAs in comparison to the GCI, the GCI isn't rising and is a low 23%.
CONCLUSION: It was a choppy trading week, but ultimately the market finished up a whopping 4.66%. The broad markets are seeing rising SCIs and participation of stocks above their 20/50/200-day EMAs is expanding. There are positive divergences everywhere. We've heard the word "capitulation" bandied about. That is a keyword. It tells us two things: sentiment is as bearish as it can get and there are no sellers left. We're not so sure about that, but the setup is pretty good. Given today's upside initiation climax and bullish indicators/divergences, we expect a bear market rally very much like last summer's strong 18%+ rally. The long-term picture is still weak which is why we are calling this a "bear market" rally.
Erin is wading in with her exposure. She is now at 35% with a 2.5% hedge. That should expand again on Monday, particularly if we see a small decline. Her target for now is 50% - 60% exposure.
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BITCOIN
This week we wrote our analysis on Bitcoin Monday and the comments applied throughout the week. Bitcoin is rather boring right (who'd have thunk it?). Price is in a sideways consolidation range. The indicators are flat and/or negative and the intermediate-term declining trend remains intact. We expect Bitcoin to maintain this trading range and eventually drift through the declining trend. We highly doubt it will establish a strong rising trend on that "breakout".
This chart is to show where some of the support/resistance lines come from.
INTEREST RATES
The 20/30-year yields both moved strongly higher while most others (including the 10-year yield) moved lower.
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.
This week the inversion between the 2-Year and 20-Year durations was relieved; however, shorter duration inversions still persist.
10-YEAR T-BOND YIELD
Last month $TNX broke down from a parabolic rise. It looks like we are seeing another parabolic rise developing. The short-term rising trends are getting steeper. $TNX is very overbought based on the RSI. The PMO is beginning to accelerate higher and Stochastics are oscillating above 80 so a serious breakdown isn't likely.
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 6.92 to 6.94.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Started to turnover this week, but put together a small rally. Today we have a giant bearish engulfing candlestick that suggests a breakdown ahead. It has formed a symmetrical triangle and those are continuation patterns so an upside breakout was the expectation. Given the deterioration of the indicators and today's candlestick, a breakdown and test of the October low seems likely.
UUP Weekly Chart: The Dollar is due for a breakdown. It has gone parabolic this year. Parabolic patterns will breakdown hard and swiftly. So far UUP has avoided this fate, but it really is a matter of time. The weakness on the daily chart suggest it could happen sooner rather than later.
GOLD
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GOLD Daily Chart: The decline on the Dollar has given Gold a chance to recuperate. Today's rally set up a bullish double-bottom. It is still way too early to call it that (chart patterns and double-bottoms in particular have to be "confirmed" with breakouts above confirmation lines). With just one day of rally, the RSI is rising, Stochastics have turned up, the PMO is decelerating and the short-term declining trendline has been broken.
Today's discount reading is the third highest recorded. Gold sentiment honestly couldn't get more bearish. Remember sentiment is contrarian so this is excellent to see alongside today's bounce.
GOLD Weekly Chart: The current level of support isn't the strongest, but it is certainly an area that Gold could find footing. Given the large double-top and the drop below the 2021 lows, the bearish implications could be devastating. Gold still has one more line of defense and that is at the 2019 top.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners popped today. It's no wonder given Gold had a great day and so did the market. We will now call the basing pattern a reverse head and shoulders. We've been suspect of the current rally as participation was thin regarding stocks above their 20/50/200-day EMAs, but that has quickly changed. The RSI just moved into positive territory and the PMO is turning up above its signal line. The SCI is starting to show signs of life.
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 price action has been unimpressive as we see a filled black candlestick and an inability to close above the 50-day EMA. However, the PMO has shifted upward. We don't have confirmation from Stochastics yet, but the RSI just moved back into positive territory. XLE looks very strong right now so we do expect to see prices move back up. We have a bullish reverse head and shoulders pattern building.
USO/$WTIC Weekly Chart: The long-term rising trend continues to hold. We do not like that the weekly PMO has turned down below the signal line, but the decline is gentle and the RSI is rising. Support is fairly strong at $60 and the rising trendline.
BONDS (TLT)
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Bonds are really getting stressed, and a waterfall decline is in progress. While the RSI is oversold when a chart looks this bearish, you know that oversold conditions will persist.
TLT Weekly Chart: Last week long-term support was broken on the weekly chart. This week's decline only made things worse. Again we see very oversold conditions. However, it will take extreme effort to lift this sinking tanker at these depths.
Good Luck & Good Trading!
Erin Swenlin And Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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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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