The latest Consumer Price Index (CPI) will be released tomorrow, and it is likely to show improvement due to the administration's jiggering of the calculation. Certain components, which have been measured based upon a two-year change, will now be measured by a one-year change. Inflation over the last two years has been huge, but most of it took place in the first year. The result of the new calculation, assuming improvement, will be received very favorably by investors, and we could see a continuation of today's rally. To be clear, we don't say this with any degree of certainty, but it is something that argues against too heavy a commitment to the short side. The following 65-year CPI chart argues against any hope of significant relief from inflation.
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.
CLICK HERE for Carl's annotated Sector charts.
THE MARKET (S&P 500)
IT Trend Model: BUY as of 1/12/2023
LT Trend Model: BUY as of 2/9/2023
SPY Daily Chart: The market is bouncing off not only the 20-day EMA, but from the bottom of a bearish rising wedge. We had thought we would see a breakdown here, but price has decided another test of the top of the wedge is required first.
The PMO has bottomed above its signal line which we consider especially bullish. The RSI is staying in positive territory above net neutral (50). Internal strength is mixed. Stochastics have turned up, but the VIX is below its moving average on the inverted scale. A rising VIX is positive in any case on the reverse scale.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: The 10-DMA of the High-Low Differential turned up bullishly. We saw a small number of New Highs despite a strong rally.
Climax* Analysis: Today saw climax readings on all four indicators, giving us an upside initiation climax. SPX Total Volume did not confirm and contracted to 85% of the one-year daily average. It was a holiday for some today, so that could explain the lower volume.
*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 NEUTRAL.
Our short-term indicators rose in unison today and are in neutral territory now. We like seeing the expansion in stocks above their 20-day EMAs and particularly %PMOs Rising. Positive momentum is the rising tide that can lift all boats.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
47% of stocks have PMO crossover BUY signals while 50% have rising PMOs. We could see a small expansion in the number of PMO BUY signals. If they continue to contract, it is a sure sign that the market is weakening not strengthening.
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 NEUTRAL. We saw a good expansion of stocks above their 20/50-day EMAs. Unfortunately it was not enough to push those percentages above the Silver Cross Index's. This means the already declining Silver Cross Index is likely to continue its fall out of overbought territory. The long-term bias is BULLISH since we still have more stocks above their 50/200-day EMAs compared to the Golden Cross Index percentage. This implies we will see the Golden Cross Index rise.
CONCLUSION: The short term is showing bullish tendencies right now. Tomorrow's CPI print will likely be positive given the new calculation. Those unaware of the change may overemphasize the data and that could artificially inflate the market. In any case, we have an upside initiation climax and that suggests a rally continuation. This is confirmed by all of our short-term indicators reversing upward. More bullish evidence would be an expansion in participation. We expect price to tap the top of the bearish rising wedge one more time at 420.00 on the SPY.
Erin is exposed 20%.
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BITCOIN
Bitcoin is currently clinging to support at the November high. The large rounded top and falling PMO tell us to expect a breakdown. The RSI is also negative and Stochastics are oscillating well below 20.
INTEREST RATES
We are seeing bullish double-bottoms on interest rates. They won't be confirmed until breakouts occur at their confirmation lines across the middle of the "W".
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 has broken its declining trend and is forming a bullish Adam & Eve double-bottom. The RSI is positive and the PMO has now reached positive territory. Stochastics are set strongly above 80. It appears rates will be making another run at new 52-week highs. PFIX is the interest rate ETF that follows yields.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: SELL as of 1/31/2023
UUP Daily Chart: The Dollar is holding above its short-term rising bottom trendline but price is going nowhere. The 200-day EMA is posing difficult resistance. Indicators are very bullish so we expect this rally will get legs, but so far it's just consolidation.
GOLD
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Gold is clinging to support along the 50-day EMA. Indicators are negative, but Gold is holding up. This is good as the indicators are decompressing without much price damage.
GOLD Daily Chart: Gold's strength against the Dollar has deteriorated and the reverse correlation is incredibly strong. The Dollar's lack of initiative has saved Gold from a stronger decline, especially given Gold has been losing strength internally.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners continue to decline. Participation fell off a cliff and is just getting worse. We now see that the Golden Cross Index has topped and is nearing a negative crossover its signal line. Support is arriving at the 200-day EMA, but given the lack of internal strength, we expect Miners to fall further.
CRUDE OIL (USO)
IT Trend Model: SELL as of 2/2/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil is range bound and while it enjoyed a strong rally last week, it is already nearing overhead resistance. If we trust the indicators, the new PMO BUY signal tells us price should push past the first resistance level at the December/January highs.
BONDS (TLT)
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: We have two possible chart patterns and unfortunately each has a different outcome. On this short-term chart we see a bullish ascending triangle (flat top, rising bottoms), it tells us to expect an upside breakout.
However, we can also see this as a possible symmetrical triangle (declining tops, rising bottoms). These are continuation patterns and suggest a downside break. We prefer this chart's symmetrical triangle, primarily because price is already attempting a breakdown. Indicators are bearish as well. And of course, we a bullish on yields which means we should be bearish on Bonds given their reverse correlation.
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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