Consumer Staples (XLP) is pulling back from all-time highs and in the process, it generated a PMO crossover SELL signal in overbought territory. Is this sector finished?
When we look at price, it is still holding support at the mid-December price top and the 20-day EMA. It certainly looks toppy, but participation under the surface isn't that bad. The Silver Cross Index (SCI) is at a potent 97% and the Golden Cross Index (GCI) is a bullish 78%. Participation is sinking somewhat and that is giving us a bearish short-term bias given the %Stocks > 20/50-day EMAs are below the SCI reading. Still, seeing %Stocks > 20/50-day EMAs at well over 70% is bullish overall. The PMO and Stochastics are bearishly configured. The RSI is positive and not overbought.
The market is rebounding and likely rotation is beginning to shift back into some of the beat down growth stocks. If price loses current support, look for a test of the 50-EMA and $74.
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 (Daily): XLE and XLF are clear outperforms right now and given inflationary pressure and rising rates ahead, these sectors should continue to flourish. XLP popped back into Leading, but given the new PMO SELL signal, I'd be careful in this sector. XLI and XLB are in Leading but are starting to hook around toward a southwest bearish heading. XLK, XLC and XLV are Lagging and based on their heading, aren't likely to improve for awhile. XLY is Improving, but heading in a neutral southeast direction. Defensive sectors XLU and XLRE are headed toward Lagging.
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: Yesterday's rally saw follow-through today and price closed above the 20-EMA again. Overhead resistance is holding up, but intraday price did manage to reach above those November/December all-time highs.
Total Volume contracted on today's price rise suggesting this short-term rally could be cooling. Stochastics are positive and ready to rise. The PMO has decelerated and should turn up soon. The RSI is positive. The intermediate-term rising trend channel is holding up.
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 and GCI continue to diverge with the SCI inching a bit higher and the GCI inching a bit lower. Both are reading above 70% which is bullish overall.
S&P 500 New 52-Week Highs/Lows: New Highs expanded today, but remain in a declining trend. The 10-DMA of the High-Low Differential continues to decline which suggests internal weakness.
Climax* Analysis: No climax today. The VIX continues to rise and hasn't punctured the upper Bollinger Band on our inverted scale. This indicates we could see more follow-through on this current rally out of Monday's lows.
*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.
Finally the STOs are in agreement as they both are rising now. Participation didn't really improve much. I'd like to see at least half of the SPX with rising momentum, but it is encouraging to see the STOs rising in concert.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM and ITVM remain mixed. The ITBM is declining and the ITVM is rising. My sense is that the ITBM got too overbought and has to unwind more. The problem is that both indicators are now very overbought.
Bias Assessment: Yesterday's comments still apply:
"Participation ticked up slightly today. It wasn't enough to erase the short-term bearish bias as both %Stocks > 20/50-EMAs are lower than the SCI reading. Long-term the bias is mostly bullish, but it could deteriorate given %Stocks > 200-day EMAs is lower than the GCI reading and the GCI topped today."
CONCLUSION: I liked seeing the follow-through on this rally, and I especially liked seeing the STOs rising together and not in overbought territory. Participation is still very thin and less than half of the SPX have rising momentum. That will need to improve if the market plans on reaching and sustaining new all-time highs. Overbought IT indicators suggest that market will reverse lower this month so enjoy the current rally, but prepare for the eventual pullback or possible correction.
I am 30% exposed to the market with 70% in cash and readily available to trade. My stops are set in case this rally reverses course more quickly than I anticipate.
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As noted yesterday, I should hire my 13-year old nephew who bought $5 in Bitcoin on Friday. He's starting to show an aptitude and interest in this business so maybe one day we'll have another Swenlin on payroll. The indicators have ripened with the PMO turning back up and the RSI headed for positive territory. Stochastics are moving back up as well suggesting Bitcoin will likely push past short-term resistance at the December lows and 20-day EMA.
With the FOMC prepared to raise rates, a rising rate environment will be the new normal.
10-YEAR T-BOND YIELD
$TNX fell again after becoming overbought. It's amazing how the RSI really tells a story. $TNX was extended and needed a pullback. I'm not particularly worried about it falling past support at 17.0 mainly due to the rising PMO and Stochastics staying above 80. However, we will need to monitor Stochastics. I wouldn't want them to move much lower than 70 before reversing.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar fell below support and is challenging the intermediate-term rising trendline. The indicators are still ugly and in the case of the RSI and PMO, they aren't as oversold as they can get. Stochastics are oversold but not rising yet.
This rising trendline doesn't just start in September, it started back in June, so losing this support is a big problem. We would expect price to challenge the 200-day EMA very soon.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: With the demise of the Dollar, Gold has the wind at its back, but we also see that discounts pared back by quite a bit, telling us that investors are also getting interested in Gold again. Technicals are sound and with the Dollar looking very bearish, we would expect Gold to breakout above overhead resistance.
GOLD Daily Chart: That level of overhead resistance is strong as it lines up with the July-September highs and the previous short-term high at the end of December. However, as noted above, a falling Dollar should help Gold breakout easily above that resistance level.
GOLD MINERS Golden and Silver Cross Indexes: The falling Dollar is indirectly helping Gold Miners as well. Price rallied back above the 50-day EMA and is ready to take on resistance at the 200-day EMA. The long-term bias is still bearish given the low GCI reading and participation of stocks > 200-day EMA is less than the GCI percentage. The short and intermediate-term biases are bullish given the nearing SCI crossover its signal line and participation of %Stocks > 20/50-day EMAs is far above the SCI reading. I like Gold Miners and expect them to test the November high.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO broke out to a new six-month high. It also is breaking out of a bearish rising wedge. A bullish conclusion to a bearish chart pattern is usually especially bullish for price. Indicators are strong, although the RSI is getting overbought. An overbought RSI isn't the death knell for USO; it spent nearly all of October above 70. The PMO is not overbought and is rising nicely. Stochastics are holding easily above 80.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: BUY as of 11/5/2021
TLT Daily Chart: TLT set higher intraday highs and higher intraday lows than yesterday, but finished lower on the day. Price is now up against short-term resistance at the November lows. Indicators aren't really improving. Stochastics looked like they were ready to head higher, but today flattened out. The RSI and PMO are both moving lower.
I note that current short-term overhead resistance is actually intermediate to long-term overhead resistance given it aligns with not only the November lows, but also the August low, June top and gap back in February. This level will be harder to penetrate than you may think.
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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