The market began to turn over on Friday and today it sped up the decline to begin the day. After the low was hit, it appeared the market would erase losses. However, the rally lost steam shortly after lunch and consolidated to finish the day lower. The 5-minute Price Momentum Oscillator (PMO) topped beneath the signal line at the end of the day with Stochastics toppling below net neutral (50). This doesn't bode well for tomorrow.
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.
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THE MARKET (S&P 500)
IT Trend Model: BUY as of 3/30/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: The parabolic rally is now beginning to break down. This has brought the RSI out of overbought territory. So far the PMO is still rising, but our analysis has us looking at the 20-day EMA and 425 as the next line of support. We expect to see the PMO turn lower and hopefully move out of overbought territory.
The VIX isn't showing signs of market distress as it remains above its moving average on the inverted scale. A reading of 13 to 14 tells us participants are complacent. Stochastics have turned lower, but do remain above 80. These two indicators suggest internal strength.
Here is the latest recording (6/12 - no recording on 6/19):
S&P 500 New 52-Week Highs/Lows: New Highs were shaved back on today's decline. The 10-DMA of the High-Low Differential is rising, but definitely near-term overbought.
Climax* Analysis: Today three of the four relevent indicators had climax readings, so it was a downside initiation 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 UP and the condition is OVERBOUGHT.
Both Swenlin Trading Oscillators (STOs) moved lower which is in line with the downside initiation climax. We saw quite a few PMOs, which had been rising, turn lower on the day. This isn't good for participation, but it does take readings out of overbought territory. %Stocks above their 20-day EMA also pared back, but remains above our 50% bullish threshold.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
It is hard to see, but both the ITBM and ITVM moved slightly higher on the day. They are overbought and with the market so extended, we do expect them to turn lower on further price decline. %PMO BUY Signals topped today, but the majority of PMO BUY Signals remain intact. That percentage will likely move lower more significantly tomorrow given only 68% have rising PMOs. Some of those BUY signals are very vulnerable.
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 market bias is BULLISH in all three timeframes.
While we do expect lower prices, %Stocks > 20/50/200-day EMAs hold readings above our 50% bullish threshold. The Silver Cross Index (SCI) and Golden Cross Index (GCI) are both rising and have plenty of real estate to move higher. %Stocks > 20/50/200-day EMAs percentages are all above the SCI and GCI so they will continue rising at this point. A pullback will move overbought indicators lower and we do expect to see this.
CONCLUSION: The market got overextended on the recent parabolic rally and it is time for digestion. The downside initiation climax suggests the decline today will morph into a continuation of lower prices. The STOs both saw substantial declines, but participation levels are still bullish with readings above our 50% bullish threshold. IT indicators are still rising. The bullish short-term bias should prevent a deep correction. Profit taking isn't a bad idea as we wait out the digestion of overbought conditions. Additional exposure can be done carefully. Profit taking isn't a bad idea and at this point, stops should remain in play.
Erin is 25% long, 0% short. She will be adding today's "Diamonds in the Rough" barring unusual chart behavior.
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BITCOIN
The rally has taken hold and instead of a breakdown from the bearish rounded top, it has broken out. Stochastics suggested a turnaround was possible. After triggering a Crossover BUY Signal, the PMO is now expanding the margin between it and its signal line suggesting this rally could get legs. The RSI is not overbought and can certainly accommodate higher prices.
INTEREST RATES
Yields were mostly down on the day with the exception of very short-term rates.
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
It appears that a short-term Adam and Eve Double-Top is being formed which would mean a trip to the bottom of the bullish falling wedge or at least a test of 3.4%. The RSI is positive, but the PMO has turned lower and is nearing a Crossover SELL Signal. Stochastics turned down last week and could move below net neutral (50) soon. The bias is bearish on this chart, but indicators haven't fallen apart yet.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With yields possibly forming a double-top, it isn't surprising to see a bullish double-bottom on the Bonds chart. Indicators are positive suggesting we will get an upside breakout. This would confirm the double-bottom pattern. The upside target of the pattern would be just below resistance at 108. We aren't that bullish yet.
DOLLAR (UUP)
IT Trend Model: BUY as of 5/18/2023
LT Trend Model: SELL as of 4/12/2023
UUP Daily Chart: After a terrible week, the Dollar rebounded but formed a bearish filled black candlestick. The indicators are already looking less bearish on today's rally, but the bearish double-top is still in play.
GOLD
IT Trend Model: NEUTRAL as of 6/8/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: The rally in the Dollar today did no favors for Gold. The inverse correlation suggested we would see a decline of about -0.28%. Instead we saw a big 1.04% decline. This is particularly bearish given it is arriving on a break below support.
GOLD Daily Chart: Indicators are bearish with the RSI below net neutral (50), Stochastics falling in negative territory and the PMO Crossover SELL Signal. $GOLD is holding support, but we don't expect that to last.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners were at the mercy of a big decline in Gold and the market in general. We have been expecting this test of support, but the drop below the 200-day EMA and an SCI that is falling vertically, we would look for price to break even lower.
CRUDE OIL (USO)
IT Trend Model: SELL as of 5/3/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil remains in a messy trading range. The indicators show a bullish bias, but we note that just when the indicators get bullish, price falls apart. USO hasn't tested the top of the range at 66.00 so bullish indicators tell us to look for another test of overhead resistance at 65 or 66.
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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DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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