This morning Fitch Ratings, Inc., one of the "Big Three" credit rating agencies (along with Moody's and Standard & Poors), downgraded U.S. debt from AAA to AA+, and this kicked the legs out from under the market. It was a reminder that the myriad of major problems facing the economy and the stock market have not gone away, and that some will manage to get worse while we are in the process of pretending they're not there. One would think that this would kill the Dollar and boost Gold, but one would be wrong. In those sections below we will find that the opposite is true. Go figure.The Magnificent Seven + Tesla, which have led the market up, suffered greatly.
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 Market Index, Sector, and Industry Group charts.
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: Price broke down from the bearish ascending wedge today as the pattern predicted. The PMO is accelerating downward.
The VIX punctured the lower Bollinger Band on our inverted scale and that often times leads to an upside reversal. We don't see that this time as the Bands were so squeezed together it was inevitable. We believe it will look something like March with many punctures. Stochastics are moving vertically lower. Internal weakness abounds.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: As one would expect, New Highs contracted and we saw a few New Lows. The decline of the 10-DMA of the High-Low Differential suggests more downside ahead.
Climax* Analysis: Of the four relevant indicators, there were three climaxes, so this looks like a solid downside initiation climax, the first climax day in 16 trading days. SPX Total Volume was solid, but not at blowout levels that would imply exhaustion.
*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 NEUTRAL.
This is the first time since June that we've seen negative readings on the Swenlin Trading Oscillators (STOs). Participation is dropping quickly. Less than 1/4th of the index hold rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM/ITVM continue lower but remain overbought and in need of more decline. Less than half of the index hold PMO Crossover BUY Signals and we should that cut down even further tomorrow given only 23% have rising PMOs.
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 market bias is BEARISH.
The intermediate-term market bias is BEARISH.
The long-term market bias is NEUTRAL.
The bias is bearish in the ST and IT primarily due to the steep loss in participation of stocks > 20/50-day EMAs. The Silver Cross Index has topped and is nearing a Crossover or "Bearish Shift". The Golden Cross Index could potentially move higher given there are a higher percentage of stocks above their 50/200-day EMAs v. Golden Crosses, but it is already hesitating.
CONCLUSION: A catalyst was needed to get a pullback going and Fitch provided the spark. Our indicators have been suggesting a downside reversal would occur soon. Today's downside initiation climax and visible internal weakness suggest this will see follow-through. STOs are in negative territory and the market bias has been adjusted to "Bearish". Erin lightened her portfolio and is eyeing hedges.
Erin is 20% long, 0% short.
Calendar: AAPL and AMZN will announce earnings tomorrow after the close. Potential to move the market Friday.
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BITCOIN
Bitcoin is refusing to fully break down. Price movement is getting a bit more volatile and indicators are weak. Given Stochastics are still rising, this level of support could hold up longer.
INTEREST RATES
Yields are in rising trends and will likely continue to rise and test prior highs.
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
We are expecting a breakout ahead for $TNX. This is a strong basing pattern and the indicators are very favorable.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT is continuing to lose ground and has hit 6-month lows. The indicators remain very negative so we expect the decline to continue. Yields look particularly bullish right now with the 20-year yield breaking out.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 7/13/2023
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: Yesterday's comments still apply:
"The Dollar is making a comeback and the PMO as well as Stochastics suggest this rally will test overhead resistance at the May/June tops."
GOLD
IT Trend Model: NEUTRAL as of 8/2/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Today the Gold Shares ETF (GLD) 20-day EMA crossed down through the 50-day EMA (Dark Cross) above the 200-day EMA, generating an IT Trend Model NEUTRAL Signal. GLD lost support, but we think this is just part of Golds tedious ways. The Dollar is doing no favors for Gold.
GOLD Daily Chart: Thankfully for Gold the correlation with the Dollar is easing. This could give Gold some breathing room, relative strength has yet to pick up against the Dollar. Discounts popped higher yesterday suggesting the majority of traders are bearish on the metal. We see a rising trend that is intact and a rising PMO which is still somewhat bullish.
GOLD MINERS Golden and Silver Cross Indexes: Support is now being tested and given the Bearish "Shift" on the Silver Cross Index, we don't think it will hold
CRUDE OIL (USO)
IT Trend Model: BUY as of 7/12/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: The wedge is still in force on USO and does suggest some follow-through on today's decline. However, the indicators are holding up so it could get away with consolidation. Should we see follow-through, we believe support is relatively safe at 69.00.
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.
Helpful DecisionPoint Links:
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DecisionPoint Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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