This morning Mary Ellen McGonagle and I taped Chartwise Women. We discussed the concept of "bear market rules". She opened with this great chart that points out what has happened before and after corrections and bear markets. I have to say the Yogi Berra phrase "déjà vu all over again" applies.
Number one would be a breakdown below the 40-week SMA which corresponds to a break below the 200-day EMA on a daily chart. Next would be the weekly RSI turning negative (moving below 50) and weekly Stochastics turning negative (moving below 50). Well guess what? Those conditions have all been met which suggests we have more downside ahead.
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MAJOR MARKET INDEXES
SECTORS
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: Yesterday's comments still apply:
"XLE still has the best relative strength against the SPY which is no surprise. XLU and XLP have the most bullish configuration as they travel in a bullish northeast heading, moving further into Leading. XLB and XLF dropped into Weakening and haven't turned around. XLK is trying to reach Improving, but overall it is still a Lagging sector. XLY is moving further into Lagging, holding the weakest position on the RRG. XLRE and XLV are beginning to show relative strength and have moved into Improving. XLC is still in Leading but has a very negative southwest heading. XLI is still in Leading, but is mostly directionless 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: Neutral as of 1/21/2022
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: Carl smartly annotated a bearish reverse flag formation on the SPY. The minimum downside target of the pattern $380.
Notice that $380 puts price at the late March pullback low. Indicators remain very bearish and I remind you, an oversold PMO for the SPY would be at -2.00 so the current reading of -1.38 isn't oversold. Stochastics just topped in very negative territory which is very bearish.
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 is now beginning to reach typical oversold territory around 40%. However, as far as a bear market oversold reading, it isn't even close and neither is the GCI.
S&P 500 New 52-Week Highs/Lows: We have annotated a positive divergence between New Lows and price lows. We do have a bottom this week at $420 so that could count as a resolution of the positive divergence.
Climax* Analysis: No climax today. The VIX again closed back within the Bollinger Bands today, but it hasn't resulted in higher prices. Total Volume was again very high on the selling.
*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 EXTREMELY OVERSOLD.
The STOs are beginning to contract after the market formed a new price bottom. In a bull market, oversold conditions usually lead to higher prices. However we are in a bear market so oversold conditions are to be considered "thin ice", not a solid foundation for a rally. If price moves sideways above $420, that could unwind these indicators out of oversold territory. It doesn't have to be higher prices. Yesterday and today are good examples--higher intraday lows, but still a negative close. As for participation and rising momentum, those can stay oversold for some time.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
IT indicators are finally oversold. I've added a year onto this chart so that you can see that in 2018 these indicators moved much lower. So they are oversold for a bull market, but not for a bear market.
Bias Assessment: Yesterday's comments still apply:
"There is still a strong bearish bias in the short and intermediate terms. Participation of stocks > 20/50-day EMAs is far lower than the SCI. This means the SCI will continue to see damage. The long term has a bullish bias based on the GCI being above 70%, but we know there are fewer with price > 200-day EMA. This means the GCI will continue to move lower. That is what is causing the long-term bias to be bearish."
CONCLUSION: Adding insult to injury, we now have a very bearish reverse flag formation on the daily chart for the SPY. Yes, indicators are oversold and in a bull market we would be looking for a rally. However, we are in a bear market so they are not oversold based on prior history. There is more downside to endure. With the VIX rising, we could see higher prices, but ultimately we expect the market to move much lower.
Catch me on The Final Bar tomorrow at 4p ET on StockChartsTV as I fill in for David Keller.
I'm 8% exposed to the market with two positions in Energy and one in GLD.
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BITCOIN
Yesterday's comments still apply:
"Bitcoin is trying to bottom before hitting strong support at $30,000. Indicators are improving, but the PMO is still technically in decline. I am watching for a bottom here, I just think it will need to hit that $30,000 number first. When it does, that is when I expect to see a Bitcoin recovery as bottom fishers reenter." This current rally doesn't look solid.
INTEREST RATES
Yields tipped over today after breaking above October highs.
10-YEAR T-BOND YIELD
The 10-year yield lost two basis points today, but it remains above strong support and is still holding onto its rising trend. Indicators are positive, particularly Stochastics, so we expect $TNX to either move higher or hold this support level.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: I was looking for a test of the November high, I didn't expect a huge gap up above that resistance level. I do think it is vulnerable to being a "reverse island" formation which suggests a gap down coming soon. However, I can't ignore the very positive indicators.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: GLD broke from the rising trend channel. There is plenty of support available between $165 and $167. The Dollar will need to cool its jets before we see Gold rebound here. Stochastics are very negative, the PMO is nearing a crossover SELL signal and the RSI is now negative and falling.
Full Disclosure: I own GLD.
GOLD Daily Chart: Interestingly, discounts are low and getting lower suggesting that investors are more bullish on Gold. While price isn't really reflecting this, I do believe it is positive and could prevent a more serious breakdown.
GOLD MINERS Golden and Silver Cross Indexes: GDX also broke its rising trend. Price is testing horizontal support at the prior January low. The chart looks terrible. Look for price to move even lower.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:"
Crude Oil continues higher. Some of this could be attributed to unrest with Russia and Ukraine. There is a big unknown as to whether Russia will tighten its supply to Europe. That concern could mean continued higher prices for Crude Oil and possibly Natural Gas as well." Beware of today's filled black candlestick though. It could mean a test of the rising trend.
Indicators are very positive with positive RSI, rising and not overbought PMO, and rising/positive Stochastics.
BONDS (TLT)
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: TLT is stuck in a trading range between $141 and $144. Indicators are improving, but with rising yields, I don't see much upside potential here.
Happy Charting!
Erin 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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