We had two emails arrive this week from subscribers asking about the daily RRG vs. the weekly RRG. The daily RRG tends to be somewhat noisy, but sector rotation changes quickly in the very short term and that is what we have been capturing in our daily DP Alert reports. However, it is time we include the weekly version of the RRG in the Weekly Wrap.
Think of it this way, we use the daily bar or candlestick charts to see the near-term price action and indicators of a stock or ETF, but we like to have context by also looking at the weekly charts. The weekly PMO and weekly RSI generally look very different from the daily versions. This is the same for the weekly RRG.
Below is the daily RRG that we include in each report. The questions were prompted by the movement of XLY. XLY was the strongest performer this week yet it is traveling in a bearish southwest heading. RRGs measure "relative strength" not strictly price performance (you can do that by making the benchmark "$ONE" instead of the SPY). This is why XLY isn't traveling as expected given its price performance this week.
On the weekly RRG, XLY looks far different as it outpaces the SPY and continues in a bullish northeast heading within the Leading quadrant.
Conclusion? Ultimately the reason XLY didn't behave as you might expect is that it is measuring "relative performance" not "price performance".
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 the week:
Each S&P 500 Index component stock is assigned to one, and only 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 the Week:
Daily RRG® Chart: Looking at the daily, XLU is looking strong and XLV is similarly traveling with the bullish northeast heading. XLY and XLK had the best weeks, but it isn't really reflected in the daily RRG. XLB is Leading but losing steam. XLC, XLE, XLP and XLI are reversing backward. XLF and XLRE are showing improvement but are both still Lagging.
Weekly RRG® Chart: The weekly version shows that intermediate-term strength lies with XLE, XLY and XLF. XLK looks very intriguing as it hooks back toward Leading. XLB and XLI have bullish headings within Improving. All other sectors look very bearish right now.
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: BUY as of 10/18/2021
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: Options expiration was this week, and we expect low volatility toward the end of the week, but SPY remained within a one percent range all week.
We expected consolidation and a trickle up this week and that is exactly what we got. Now the picture is getting less bullish with the PMO turning down toward a crossover SELL signal and Stochastics also turning lower.
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SPY Weekly Chart: We have a large bearish rising wedge on the weekly chart. The weekly PMO is still rising toward a crossover BUY signal, but it has decelerated and is flattening. The weekly RSI is overbought and could use some relief.
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.
Yesterday the SCI topped. It is nearing a negative crossover. The foundation is softening given the continued decline of the GCI. Nearly 20% of the SPX have bearish biases given the 50-EMA is below the 200-EMA.
New 52-Week Highs/Lows: We've seen an increase in New Lows this week. Combined with a contraction in New Highs, the 10-DMA of the High-Low Differential is declining and has set up negative divergence.
Climax Analysis: No climaxes this week. We expanding negative breadth this week as Volume Ratios saw high Down/Up readings despite the slight rising trend. The VIX has now punctured the lower Bollinger Band on our inverted scale which is bullish and suggests we will see somewhat higher prices on Monday or Tuesday. However, the Bands are tightly squeezed together and moves outside the Bands are likely. We don't want to read too much into this. The VIX also didn't close beneath the lower Band. Total Volume spiked well above the annual average but that is likely due to options expiration so we can't read too much into it.
*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 indicate either initiation or exhaustion.
Short-Term Market Indicators: The short-term market trend is UP and the condition is SOMEWHAT OVERSOLD.
Despite the rising trend, STOs have been contracting which forms a negative divergence in our minds. The readings are now getting oversold, but we've seen them move much lower. We had a major drop off in %Stocks with rising momentum. Right now the SPY is moving higher on the backs of a small percentage of stocks.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
IT indicators turned down this week and are moving out of overbought territory. This is negative for the intermediate term because they have plenty of room to continue lower. We now have about 50% of stocks holding onto their PMO BUY signals.
Bias Assessment: The short-term bias is bearish given participation percentages of stocks > 20/50-EMAs is much lower than the 70% SCI reading. The reading of 70% is still bullish for the intermediate term and in the long term, the GCI reading above 80% tells us there is still a bullish long-term bias. However, with both the SCI and GCI deteriorating, the bullish bias is slipping away.
CONCLUSION: This week the market consolidated sideways in a slight rising trend. Given the shrinking participation and bearish short-term bias accompanied by falling STOs, we would look for lower prices next week. The VIX suggests we could see price move slightly higher early in the week, but all of the bearish indicators tell us that if price does rise, it will be short-lived. Expanding your exposure isn't wise given there are fewer stocks to pick from. Manage your positions carefully and consider hard stops.
Erin's exposure to the market is currently 70% with 30% in cash available to trade.
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Bitcoin confirmed the bull flag with a breakout, but rather than continue higher toward the minimum upside target, price pulled back violently. Support at the 50-EMA has been lost. The PMO is accelerating its decline and the RSI is negative. Stochastics have hit oversold territory and has ended its decline. However, oscillators must oscillate and Stochastics were getting close to zero so until we see them move deliberately higher, they are still bearish. The next level of support is at $52,500 at the September top or it could move lower and test the 200-EMA and rising bottoms trendline.
We note an inversion of the 20-year and 30-year bond yields. Significance unknown.
10-YEAR T-BOND YIELD
$TNX is now testing the 50-EMA. Given the negative indicators, we look for it to move lower toward the rising bottoms trendline.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The dollar broke out from a bearish rising wedge which is especially bullish. After that it pulled back to that breakout point in textbook fashion and bounced today. Indicators are still very positive so we are bullish.
UUP Weekly Chart: The weekly chart is also bullish on UUP. A double-bottom was finally confirmed last week. The weekly RSI and PMO suggest we will see the minimum upside target of the pattern reached at about $26.50.
IT Trend Model: BUY as of 10/28/2021
LT Trend Model: BUY as of 11/16/2021
GOLD Daily Chart: There is a support line at about 172 that is also the confirmation line for the August-September double bottom. After the breakout above that line, GLD moved into a flat flag formation. A flat flag is not as bullish as a falling flag, but it is better than a rising flag.
The RSI is falling but remains positive. The PMO is technically rising and Stochastics are still bullish as they oscillate above 80. Discounts are paring back suggesting investors are more bullish on their outlook for Gold.
GOLD Weekly Chart: The weekly chart is very bullish. We have an upside breakout from a bearish descending triangle. The weekly RSI is positive and the weekly PMO triggered a crossover BUY signal and moved into positive territory this week.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are pulling back to the neckline of the reverse head and shoulders. Participation is seeing more damage than we would like, but an SCI reading of 90% is intermediate term bullish. The reversal will likely occur next week. If Gold executes its bull flag that will help GDX immensely.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/3/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil has now broken below key support at the 50-EMA and the earlier November low. The indicators are configured very negatively and suggest we could see Oil price move even lower next week.
This looks more like a double-top than a bull flag.
USO/$WTIC Weekly Chart: USO hit gap resistance and turned lower. $WTIC has lost support at the June high which also gives us a bearish bias on USO. Support is available at the 43-week EMA, but the topping weekly PMO and RSI suggest more weakness ahead.
IT Trend Model: BUYas of 11/8/2021
LT Trend Model: BUYas of 11/5/2021
TLT Daily Chart: TLT has benefited from falling long-term Bond yields. The indicators are positive and suggest we will see a test of overhead resistance around $151.50.
The RSI has now entered positive territory and the PMO is reversing its decline and is on a crossover BUY signal. Stochastics are rising bullishly. An upside target around $151.50 or $152 makes sense.
TLT Weekly Chart: The weekly PMO and RSI are positive and not overbought. We note the strength of overhead resistance. It not only lines up with this years tops, it also aligns with lows in 2020. It will be difficult to overcome, particularly if yields begin to reverse course.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & Erin 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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