The markets opened and traded lower most of the day until... Santa Claus Powell made his comments on the state of the economy, future tightening measures and expected rate hikes next year. It wasn't that the news was all that great, it was mainly the fact that it wasn't surprising and it wasn't nearly as scary as most investors had imagined.
Below is a CandleGlance of the major indexes so you can see the reversal and how it took place right after Fed Chairman Powell submitted his comments around 2:30p ET.
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
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.
RRG® Chart: Defensive sectors still rule the school as they continue to rotate within the Leading quadrant. XLK and XLY are the most bearish as far as relative strength to the SPY with both traveling in the bearish southwest direction. XLC has come back to life, but still has some ground to make up. XLE is moving southward toward Lagging. The remainder all look healthy sitting in Improving.
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: The rally was strong into the end of the day and brought price back up to resistance at the all-time highs. Total Volume was very high. Today's rally nearly generated a PMO crossover BUY signal.
The RSI is staying in positive territory and is now rising again. Stochastics look very positive. Price has yet to test the top of the rising trend channel. The VIX popped on our inverted scale, keeping it comfortably above its moving average.
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 SCI inched higher and the GCI ticked up slightly. That's positive, but a "tick" doesn't count as a reversal to me.
S&P 500 New 52-Week Highs/Lows: New Highs expanded, but not as high as we last saw on Monday. I like the that the 10-DMA of the High-Low Differential is still rising. In general that is positive for the market and could suggest a breakout ahead.
Climax* Analysis: Net A-D and Net A-D Volume barely touched the climax mark, and this was backed up by strong SPX Total Volume. Volume Ratios didn't quite hit our threshold. Not the most robust climax readings, but just enough that Carl and I will call it an upside initiation climax. This was a giant exhale from the Fed meeting, and we would want to see more upside follow through tomorrow. Without such follow through, we would have to reclasify today as an exhaustion climax. We shall see.
*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 NEUTRAL.
STOs continue to decline suggesting we will see lower prices ahead. We did see improvement on participation, but both are still in a declining trend.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM/ITVM turned back up and we now have half of the SPX with PMO BUY signals. This is neutral for the intermediate-term timeframe.
Bias Assessment: The bias is mostly neutral in all three timeframes. %Stocks > 20/50-EMAs are only slightly below the 59.2% SCI reading and %Stocks > 200-EMA is slightly lower than the GCI. Given all of these indicators are rising, it's more on the bullish side of neutral.
CONCLUSION: The Fed inadvertently played Santa Claus today. The rally could simply be a sigh of relief with little follow-through. The upside initiation climax, even though it is mild, does suggest we will see a rally continuation, but given the bearish STOs, I wouldn't expect much. I like that the PMO is nearing a BUY signal and positive Stochastics. More than likely we are in for what one reader told me, "slop and chop". My friend, Danielle Shay of SimplerTrading made me laugh as she recently tweeted John Carter's comment in a recent trading room, "I don't think we are going to see a broad-based Santa Claus rally, maybe more like a drunk Santa rally where he's trying to stay on the sleigh and the reindeer are high." I think that is a pretty good description.
I am continuing to exercise caution as the indicators aren't that bullish and am 10% exposed to the market.
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Bitcoin has reversed but it isn't making any headway. The short-term declining trend is still intact, it hasn't come close to recapturing its previous rising trend and Stochastics are negative. On the bright side, the PMO did bottom.
Rates are reversing after experiencing sharp drops in the last week.
10-YEAR T-BOND YIELD
The 10-year yield was higher by nearly two basis points. However, $TNX remains below the 20/50-EMAs and in a bearish rounded top.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Yesterday's comments still apply:
"The Dollar broke out of the short-term symmetrical triangle. This was expected given there was a rising trend preceding the triangle and these are continuation patterns. Stochastics are improving, but the PMO remains flat."
Despite closing lower on the day, price does remain outside of the symmetrical triangle. These are continuation patterns so we should see UUP move higher.
IT Trend Model: SELL as of 12/7/2021
LT Trend Model: SELL as of 12/3/2021
GLD Daily Chart: Gold dropped below support, but recuperated and actually formed a bullish engulfing candlestick (today's candle body "engulfed" yesterday's candle body). The PMO is flat and not providing clues. The RSI is negative, but Stochastics are rising. I would look for more sideways movement unless the Dollar begins to breakout in earnest.
GOLD Daily Chart: Discounts are elevated telling us that investors are still bearish on Gold. However, we've seen much deeper discounts so sentiment should be more bearish before counting on a rally.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners have made their way back down to support at the September low, essentially taking back all of the gains since October. Participation is still sickly. The PMO and RSI are very negative. However, this is the place for us to start watching for a bottom.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/30/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO is still has a bullish flag. Today saw a bullish engulfing candlestick. We very nearly saw a PMO crossover BUY signal and the RSI is rising. All of that is positive, but.. resistance at the 20-EMA is holding strong.
IT Trend Model: BUY as of 11/8/2021
LT Trend Model: BUY as of 11/5/2021
TLT Daily Chart: TLT broke the short-term declining trend as it closed near its lows of day. The RSI is still in positive territory and the PMO is still on a BUY signal. Stochastics, on the other hand, are pointed downward and are negative. If the market follows through on today's rally, expect Bond prices to move lower. The technicals are beginning to weigh heavy.
Technical Analysis is a windsock, not a crystal ball.
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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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