Lots of news today! First, we had a Long-Term Trend Model "Golden Cross" BUY signal on the 30-year yield ($TYX). Currently it is testing overhead resistance at the April lows, June gap resistance and the confirmation line of a large double-bottom formation. While it may be struggling here, we have every indication that it will move higher given the rising PMO, strong Stochastics above 80 and a positive RSI.
The weekly chart makes the double-bottom pattern easier to see. I also note that the weekly PMO is rising and the weekly RSI is positive.
Technology has been suffering greatly and today's breakdown below strong support at the September highs tells us to look for more downside ahead. Participation is paltry but also oversold. Still, with the PMO firmly declining and the Silver Cross Index not oversold, we expect to see a drop past the 200-day EMA.
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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: Interestingly, XLC looks the most positive as it moves toward Leading out of Improving. I still don't see much on the sector chart for XLC. XLU would be the next bullish candidate given it has a northeast heading and is within Leading. XLRE, XLV and XLK are curling around toward Improving. Strongest performer XLE is turning south, but is still going to be a fixture in Leading for some time. XLF, XLI and XLP are losing ground and heading toward Weakening. XLB and XLP have reversed and could hit Weakening very soon.
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 5-Minute and Daily Charts: Yesterday's downside exhaustion climax resolved with this morning's rally, but it continued lower.
Price has now broken below major support. We have another climax today and given the strong declining trend we have to assume it is another exhaustion. We'll look at the chart further down.
The rising trend channel has also been broken which definitely doesn't bode well. The PMO has dropped below the zero line and is accelerating lower. The RSI is negative and not oversold yet. Stochastics are now oversold, but are pointed downward. We don't see any signs that the decline is over.
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 continued lower, but sadly isn't oversold yet. Today, the GCI topped.
S&P 500 New 52-Week Highs/Lows: New Highs contracted and we saw a slight expansion of New Lows. The 10-DMA of the High-Low Differential is declining and is not oversold. Typically when this indicator declines the market is internally weak, but I think we already know that.
Climax* Analysis: Today we had another downside exhaustion climax -- the third in a row. Breadth dipped past our thresholds. Volume Ratios also pushed past our climax threshold. Total Volume was well above the annual average. The VIX spiked higher today which put it well-below the lower Bollinger Band on our inverted scale. The VIX suggests that this exhaustion should result in higher prices, but I think we will be lucky to get a pause.
*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 OVERSOLD.
There is no denying the very oversold conditions of the short-term indicators. This is the lowest reading the STO-B has seen all year. While participation of stocks > 20-day EMA is 31% and %PMOs Rising is only 16%, both readings can move lower.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM and ITVM contracted quite a bit, but they are still positive. The intermediate term can definitely see more downside before these indicators reach oversold territory.
Bias Assessment: Yesterday's comments still apply:
"The bias is now firmly bearish in the short and intermediate terms. Far fewer stocks have price above their 20/50-day EMAs than silver crosses. Long term has a bearish bias as well given their are fewer stocks above their 200-day EMA than have golden crosses. So while 81% is a bullish reading for the GCI, it is deteriorating and will likely deteriorate further."
I'll also add today that readings are no where near oversold on any of these indicators.
CONCLUSION: We have our third downside exhaustion climax in a row. While it implies we will see a bounce, we know based on today's price action how that could still resolve to the downside. I believe we will be fortunate to get churn or sideways price movement out of this exhaustion. Short-term indicators are seeing oversold readings, but intermediate-term indicators are far from being oversold. This suggests to me that we could see a short-term bounce, but ultimately the decline would continue. I've pared down my exposure to 25%, but am likely going to take the money and run and move to 5% exposure.
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BITCOIN
Bitcoin rallied today and is now attempting to form a bullish double-bottom. The PMO triggered a crossover SELL signal and Stochastics turned down in negative territory. This support level is highly vulnerable right now. I wouldn't count on the double-bottom executing.
INTEREST RATES
Rates were steady today. We expect to see long-term rates hit May highs.
10-YEAR T-BOND YIELD
$TNX was slightly higher on the day. There is still the possibility of a reverse island formation, but the indicators are favorable so I expect it to continue higher.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar rallied somewhat and did manage a close above the 20-day EMA. Stochastics and the newly positive RSI suggest a possible breakout from the short-term declining trend. The PMO is undecided.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold managed to close the November gap, but closed lower on the day. Indicators remain bullish so we expect a breakout here.
Full Disclosure: I own GLD.
GOLD Daily Chart: $GOLD shows a breakout and price holding above support. Discounts continue to trend lower as more investors become bullish on Gold. I like Gold right now and am looking for a rally to at least $1880.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners gave back some of yesterday's big gain. It did close beneath the 200-day EMA by 2 cents, but I'm considering as support holding. The PMO is now in positive territory and the RSI is too. Stochastics are rising again. I expect Miners to resume the rally shortly.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil pulled back today but the RSI is still overbought. The PMO is getting overbought. Stochastics turned down but are still above 80. I expect to see a pullback and test of support at the October high. It's just gotten too overbought.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With yields declining again today, TLT benefitted. However, we now have a LT Trend Model "Death Cross" SELL signal. Other indicators are still very negative so I doubt this level of support will hold much longer.
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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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