One of the best long-term indicators is the "Golden Cross Index" (GCI). The GCI measures how many stocks within an index have a "golden cross" or a 50-day EMA that is above the 200-day EMA. After a long-term bull market run in 2021, we would expect all indexes to have bullish readings on the GCI (70% or more). Only two of the major indexes have a GCI above 70%, the SP500 (SPY) at 76.80% and SP400 (IJH) at 70.25%. The biggest issue going into next year are the long-term negative divergences on ALL index GCIs. Given the gains we've seen out this year and out of the bear market low, we should have much higher readings.
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:
Short-term (Daily) RRG: We have only three sectors that are "Leading" with XLV, XLB and XLRE shifting toward a southward heading toward Weakening. XLK is doing its best to avoid Lagging as it has shifted northward. XLF just moved into Lagging, the only sector within. XLY, XLI and XLE have moved into Improving. XLC is slowly making its way toward Leading. This beat-down sector has seen a resurgence. Two defensive sectors (XLU and XLP) have moved quickly into the Weakening quadrant. This could mean a market reversal given defensive sectors are losing their footing. Typically you will see defensive sectors outperform before a market top.
Intermediate-Term (Weekly) RRG: In the longer term, XLC is still Lagging and is traveling in the bearish southwest direction. XLK is still reflecting leadership in the longer term with XLRE finding its way into Leading and traveling in the bullish northeast direction as well. XLY is in Leading, but has a bearish heading as it moves toward Weakening. XLE firmly in Weakening and traveling in the bearish southwest direction. Similarly, XLF looks the most bearish as it moves further into Lagging. XLI has a bearish southwest heading, but is still in the Improving category. All other sectors look bullish as they move in the bullish northeast direction, headed toward Leading.
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: After a strong breakout last week, price has consolidated and is headed toward support at the November/December tops. Indicators are looking more neutral with the PMO and RSI have flattened out. Stochastics are tipping over but remain in positive territory above 80.
The year was just about perfect for price progress -- from the lower left corner to the upper right corner. Not to be greedy, but the only way to make it better would be to make the angle of ascent steeper. But a gain of +33% is pretty good.
SPY Weekly Chart: It's been well over a year that price has been traveling in a bearish rising wedge. The weekly PMO is in a negative divergence with price and it is on a SELL signal leaving the intermediate to long terms vulnerable for a serious price decline.
SPY Monthly Chart: As we move into next year, the long-term monthly chart is mixed. The monthly RSI is very overbought, but we've seen those conditions persist over months and years. The monthly PMO is rising but is also very overbought. Parabolic formations typically end quickly and painfully. Prior to the 2020 bear market, price had a parabolic advance. These are dangerous as they usually resolve with a very quick and painful decline. An excellent example is the parabolic advance that preceded the 2020 bear market.
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.
Negative divergences on both the SCI and GCI led to the major declines we experienced in February and September. We are looking at negative divergences on both indicators currently.
New 52-Week Highs/Lows: New Highs contracted today after hitting overbought territory. Over this year you'll note that overbought conditions on this indicator appeared before some of our biggest market declines. We need to be careful as we enter the new year.
Climax Analysis: Not surprisingly we did not have a climax today as holiday trading kept Total Volume low and Volume Ratios below climactic levels this week. Volatile trading in the past four months caused numerous climaxes.
*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 DOWN and the condition is OVERBOUGHT.
The STOs do not sport negative divergences with price, but they are contracting after reaching the highest overbought readings of the year. While participation of stocks > 20-day EMAs and %PMOs Rising are at a healthy 84%, they are both declining after reaching overbought readings. This doesn't bode well moving into January without the benefit of bullish holiday seasonality.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
Unlike the short-term market indicators, IT indicators are still rising. While this is positive, all of the indicators are nearing overbought territory with the ITBM and ITVM holding negative divergences with price.
Bias Assessment: The bias in the short-term is clearly bullish as %Stocks > 20/50-day EMAs are above the SCI reading. The SCI is below 70% so it technically is bearish; however, it is rising and is nearing bullish territory so we would look at the intermediate-term bias as neutral. The long-term bias is bullish as the GCI is reading well above 70% and the %Stocks > 200-day EMAs is slightly higher than the GCI.
CONCLUSION: It was a year that finished positively with an over 33% gain on the SPY. The year featured three corrections in February, September and November. All were preceded by negative divergences on the majority of indicators. We are entering the new year fraught with negative divergences in all timeframes. It had appeared that COVID and its variants were letting up after vaccines rolled out and restrictions were lifted. Unfortunately, we are seeing a surge again with the new variant that is beginning to see sporting events, bowl games and concerts canceled or rescheduled, travel being limited with canceled flights and new lockdowns in Europe. These conditions spurred the bear market in 2020. Starting the new year with so many negative divergences, we believe the market will see a correction in early 2022.
Erin is currently 10% exposed to the market.
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Bitcoin hit new all-time highs this year at the eye-popping level above $67,000. However, that meteoric rise was followed by a painful decline that moved price to $45,500 in a little over a month. Currently price is traveling within a symmetrical triangle. These patterns are continuations so given the prior trend was down, we would expect a breakdown from this formation, not a breakout. Support is strong between $40,000 and $42,500 but the indicators are getting more bearish with the RSI turning down in negative territory, the PMO topping below the zero line and nearing a crossover SELL signal and Stochastics falling forcefully in negative territory.
Rates in general have been on a rising trend throughout December. Long-term yields spent April through July declining. Currently yields are slightly higher than we saw in August. We expects to see rates rise as inflation is combatted by the FOMC.
10-YEAR T-BOND YIELD
The 10-year yield fell slightly today, but remains above both the 20/50-day EMAs. The PMO has just moved above zero on a crossover BUY signal. Stochastics moved above 80 and the RSI is positive. We would expect to see $TNX rise after breaking away from a rounded top that formed in the latter part of the year.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar is now testing support at the 50-day EMA and late November lows. The indicators are very bearish suggesting this level will not hold.
The next levels of support available are $25.40 at October highs and the March/Augusts tops.
UUP Weekly Chart: The weekly chart is seeing damage as the weekly RSI tumbles lower and the weekly PMO is topping. The weekly chart also suggests that UUP will test the March August tops.
UUP Monthly Chart: The monthly chart has good news and bad news. The good news is that the monthly PMO has had a positive crossover and the monthly RSI has hit positive territory. The bad news is that price is turning down after hitting strong overhead resistance. With indicators negative on both the daily and weekly charts, we believe the Dollar has more decline ahead at least in the short and intermediate terms.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: SELL as of 12/3/2021
GOLD Daily Chart: Gold broke out of a bearish rising wedge pattern. A bullish conclusion to a bearish pattern is typically very bullish. The indicators are also looking more and more bullish. The RSI is positive and rising. The PMO is on a crossover BUY signal and has risen above the zero line. Stochastics are oscillating above 80.
The challenge ahead for Gold is overhead resistance nearing--strong overhead resistance at July/August/September tops.
GOLD Weekly Chart: The weekly chart is mixed. As far as price, there is a bearish descending triangle (declining tops and flat bottom). However, the weekly RSI and weekly PMO are rising in positive territory which does seem to suggest a break from the declining trend in the intermediate term.
GOLD Monthly Chart: Gold experienced a parabolic advance that sped up in 2018-2020. The pattern broke down as expected. After peaking in 2020, Gold has spent the majority of 2021 moving sideways in volatile fashion moving from lows at $1700 to a high just above $1900. The weekly PMO is decelerating and the weekly RSI is positive and is rising. The long-term correlation of Gold to the Dollar is shifting from its typical reverse correlation to a more neutral correlation. This means that Gold is uncoupling from the Dollar and isn't quite as susceptible to the value of the Dollar.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners continue to rise. We named it the "industry group to watch" last Thursday given the major improvement in participation and momentum. There is a clear bullish bias in the short-term with %Stocks > 20/50-EMAs reading much higher than the GCI. We expect Gold Miners and Miners in general to continue on their bull run. For the year GDX was down -9.5%.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/30/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO is nearing an IT Trend Model "Silver Cross" BUY signal as the 20-day EMA is nearing a positive crossover the 50-day EMA. Indicators are starting to show slight damage but overall they are still bullish given the RSI is in positive territory, Stochastics are oscillating above 80 and the PMO is above the zero line on a BUY signal.
Price was turned away at gap resistance formed on the late November gap down. More than likely we will continue to see USO pull back until it reaches support either at the 20/50-day EMAs or July tops.
USO/$WTIC Weekly Chart: After the disastrous bear market decline in 2020, USO has been in a bull market. The weekly PMO is trying to bottom. The weekly RSI has made it into positive territory and still rising, far from overbought territory. $60 should be the next test in the intermediate term.
WTIC Monthly Chart: Price failed to hold the breakout this year, but all is not lost. The monthly RSI is positive and we see a positive divergence with PMO bottoms.
IT Trend Model: BUYas of 11/8/2021
LT Trend Model: BUYas of 11/5/2021
TLT Daily Chart: TLT is reversing off the 200-day EMA and short-term rising bottoms trendline drawn from the October lows. Stochastics suggest price will continue rising, but the PMO is still in decline and the RSI is negative.
There is an intermediate-term rising trend that remains intact. Price can fall further before damaging that rising trend.
TLT Weekly Chart: The weekly chart shows TLT forming a bearish rising wedge. Price is nearing the bottom of the wedge which tells us to expect a breakdown. The long-term rising trend could still be maintained, but we see that the weekly PMO is topping and the weekly RSI is nearing negative territory.
TLT Monthly Chart: Early 2021 saw a deep decline on TLT as rising rates pushed Bonds lower. The rest of the year TLT trended higher; however, it never managed to fully recover at it finished down -4.6% for the year. Indicators are mixed. While the monthly RSI is positive, it is headed lower. The monthly PMO has accelerated its decline. As we know from the weekly chart above, price is within a bearish rising wedge so the coming year doesn't look good for TLT.
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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Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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