Today the S&P 600 Small-Cap Index ETF (IJR) and Health Care ETF (XLV) 50-day EMAs crossed up through their 200-day EMAs (Golden Cross), generating new LT Trend Model BUY Signals.
Small-caps are on fire right now. With price so far above both the 50/200-day EMAs, we can expect this LT Trend Model BUY Signal to stick around. One problem with the chart is the very overbought RSI. This isn't typical for IJR and could result in a pullback toward gap support or a bearish conclusion could be a reverse island formation. With such internal strength in participation, we wouldn't be surprised if we saw more follow through before a pullback.
While XLV did breakout today, the breakout failed with price falling back below resistance. We also see strong participation in XLV that should keep the rally fueled. The overbought RSI tells us we could see some sideways consolidation or a digestion period. We also note that relative strength is fading somewhat. Other than that, the chart is very favorable.
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MARKET/INDUSTRY GROUP/SECTOR INDEXES
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THE MARKET (S&P 500)
IT Trend Model: BUY as of 11/14/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: It's hard to argue with this rally, but we do have a filled black candlestick which is bearish and suggests a decline tomorrow. The broad market is keeping this rally going based on the fading relative strength of the SPY versus equal-weight RSP.
The VIX Bollinger Bands have shrunk on our inverted scale as investors remain complacent. Stochastics did top today but remain strong above 80. The PMO is now overbought, but suspect that will be a condition that will continue.
SPY Weekly Chart: SPY made a new, all-time high today.
Here is the latest recording from 12/4 (no trading room on 12/11):
S&P 500 New 52-Week Highs/Lows: New Highs managed to expand again today signifying the continued strength within the index. The 10-DMA of the High-Low Differential is highly overbought, but rising almost vertically so we expect to see it move even higher. It will likely be awhile before we see any New Lows.
Climax* Analysis: Yesterday there was an upside initiation climax with very high SPX Total Volume. The very best we could have looked for today would have been strong upside follow through, but we got the next best thing, which was a pause. We noted that yesterday's climax could have been a blowoff, but so far a sharp decline has not materialized.
Also, yesterday the NYSE UP/DOWN Volume Ratio was over 9.0, which is extremely bullish following a similar above 9.0 reading last month.
There two climax readings of the four relevant indicators, and SPX Total Volume was extraordinarily high (143% of one-year daily average). This could be associated with options expiration, but it comes a day early, so we're back to thinking blowoff. Be alert for a potential air pocket.
*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.
Short-term indicators are all overbought right now. Swenlin Trading Oscillators (STOs) rose strongly once again today. Of slight concern would be fewer stocks above their 20-day EMAs and a contraction on %PMOs Rising.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is EXTREMELY OVERBOUGHT.
The ITBM and ITVM are extremely overbought. %PMO Xover BUY Signals tipped over today, but remains above the signal line for now. These conditions need to be relieved soon.
PARTICIPATION: 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.
We have all of our participation indicators reading above our bullish 50% threshold. The Silver Cross Index and the Golden Cross Index are both above their signal lines giving us a bullish bias in both the intermediate and long terms. We still broad participation.
BIAS Assessment: The following table expresses the current BIAS of various price indexes based upon the relationship of the Silver Cross Index to its 10-day EMA (intermediate-term), and of the Golden Cross Index to its 20-day EMA (long-term). When the Index is above the EMA it is bullish, and it is bearish when the Index is below the EMA. The BIAS does not imply that any particular action should be taken. It is information to be used in the decision process.
The items with highlighted borders indicate that the BIAS changed today.
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CONCLUSION: The market continued its march higher as interest rates fell sharply again today. Small-caps outperformed in a big way. We now have participation readings strong on small-caps and mid-caps suggesting more internal strength given the broadness of the rally. The market is due for an exhale and with volume at blow-off levels and a bearish filled black candlestick, we could see a decline tomorrow. There is no evidence that this would be a deep decline. We would look for a pause that would begin to alleviate overbought conditions across indicators. Positions should be safe, but could experience turbulence in the near term.
Erin is 80% long, 0% short.
Calendar: Tomorrow is options expiration. It is an end-of-quarter expiration, so expect very high volume associated with the expiration.
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BITCOIN
Bitcoin paused and now it is back to its rally. We do have a recent PMO SELL Signal but we expect that to whipsaw away shortly given the positive RSI and rising Stochastics.
INTEREST RATES
Yields continued to slide today as the FOMC pauses its rate hikes. We believe this will continue as rates work their way down toward strong support at 2023 lows.
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 dropped further out of the bullish falling wedge. We see a new declining trend channel developing. This was a perilous drop after the breakdown of support at the 200-day EMA. The PMO is very oversold, but it is declining almost vertically. Stochastics are weak below 20. We are looking for $TNX to drop to 3.6% before this is over with.
BONDS (TLT)
IT Trend Model: BUY as of 11/28/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT broke out above resistance. The PMO is accelerating higher suggesting this rally is far from over. We would expect a digestion period given the RSI is overbought, but Stochastics are rising above 80 and the 20-year yield is in free fall. Look for TLT to move even higher.
The next level of overhead resistance arrives around 100.50.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 11/27/2023
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar continued its major decline, but managed to hold up on the 200-day EMA. We doubt that will hold given the bearish configuration of the indicators, particularly the PMO which topped beneath the zero line and triggered a Crossover SELL Signal.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold took advantage of the Dollar's weakness, but the pure inverse correlation didn't hold up. The Dollar was down -0.93%, but Gold was only up +0.59%. That is actually a sign of weakness. We also saw a bearish filled black candlestick. Indicators remain bullish, but we could see a small decline tomorrow.
Discounts remain elevated based on yesterday's readings so contrarian sentiment could assist Gold's rally moving forward.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners rallied strongly again today, but came well off the highs for the day. We now have a PMO Crossover BUY Signal and participation readings are strong. We'd like to see the Silver Cross Index get back above its signal line, but other than that the indicators look good and suggest we will see some upside follow through. It could pause tomorrow if Gold pulls back on today's filled black candlestick.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/7/2023
LT Trend Model: BUY as of 8/3/2023
USO Daily Chart: We do have a small double bottom formation that would suggest some upside follow through, but the indicators on Crude Oil still aren't gelling yet. We hesitate to get too bullish on this recent upside reversal, but it does look encouraging.
We should be alert to a possible island reversal here. We also note that we have a LT Trend Model SELL Signal on tap as the 50-day EMA is about to cross below the 200-day EMA. Look for it tomorrow.
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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