On the west coast, if you went to lunch around noon, the market was down over 2%. When you came back to the computer as Carl and I did, the market was not only up, it was closing up! We had expected to see yet another "downside exhaustion climax" today, instead we ended up with no climax.
Notice we had a textbook bullish reverse head and shoulders pattern confirmed in the final hour of trading. The minimum upside target of this reverse head and shoulders is determined by taking the height of the pattern and adding it to the breakout point. If this fulfills, price will likely test resistance at $447.50. Most of that rally has already occurred and while we are bullish moving into tomorrow's trading, we think upside will be limited.
Communication Services (XLC) triggered a Long-Term Trend Model "Death Cross" SELL signal. As the name implies it is generated when we have a negative 50/200-day EMA crossover or "death cross" as it is commonly referred to. Price is sitting on support just below $70. We could see a reversal here, but overall the indicators are negative. The PMO topped beneath its signal line and is not yet oversold. Participation is still anemic. Any rebound will likely be very short lived.
Healthcare (XLV) had a "dark cross" of the 20/50-day EMAs. Since this negative crossover occurred above the 200-day EMA, it is a Neutral signal. Price hit support at the October lows and appears to be rebounding. The PMO is still very ugly and isn't oversold yet, implying more downside. The bias is bearish in all three timeframes based on the participation percentages being lower than the SCI and GCI.
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: XLE is still the winning sector. While it is rotating southward, like an oscillator, it eventually has to make the turn. XLF is nearing Weakening. The most bullish would be XLC, XLU and XLP which are in Leading and traveling with a bullish northeast heading. The most bearish is XLY which is not only in Lagging, but has a bearish southwest heading. XLB just dipped into Weakening. XLI is holding within Leading, but is now following XLB's lead toward Weakening. XLV, XLRE and XLK are Lagging, but showing new relative strength as they move toward 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: Price dipped below support at the October low, but that was when it decided to rebound. Price not only closed above its opening price, but finished above the 200-day EMA. Total Volume was extremely high, rivaling options expiration volume.
The RSI and Stochastics are now turning up in oversold territory. The PMO is still falling, but today's rebound did cause it to decelerate.
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 has now reached the same level as it had at the recent November and December lows which means it is near-term oversold. However, we don't believe it will stop here. We will need to see it drop down to 40% to reach typical oversold levels. The GCI is still above 70% which is bullish, but it continues lower. It's not oversold and it is still falling which is bearish.
S&P 500 New 52-Week Highs/Lows: We finally saw a more significant amount of New Lows today, but not as low as November. Carl made the comment in today's DecisionPoint Show that if this is the lowest reading we get, we will have a positive divergence. New Lows would be on a rising trend while price bottoms are clearly declining.
Climax* Analysis: No climax today. We had elevated Total Volume, but Breadth was not. Volume Ratios were well below our threshold of 3.0. The VIX hit 40 today, but pulled back to 29.90. This is our fifth puncture of the lower Bollinger Band on the VIX. Given it is arriving on a rebound day like today, we expect slightly higher prices tomorrow.
*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 continued to fall today. They are now in extremely oversold territory. Participation ticked up slightly. %PMOs Rising expanded by 3% today. Of the 500 SPX stocks, 40 have rising momentum. That's not enough to turn this freight train around, but it is at least an improvement.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
This is the chart that tells me we have more downside to endure. With this deep decline, the ITBM and ITVM have not hit oversold territory. They are extremely vulnerable. %PMO BUY Signals is oversold, but continuing lower. Given only 8% have rising momentum, we will see BUY signals continue to fall away.
Bias Assessment: 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: Today's strong upside reversal on the SPY was breathtaking. This has set us up for some follow-on rising prices. Short-term indicators are very oversold so we aren't surprised we are finally seeing prices rise. The big problem is the intermediate term. IT indicators are not oversold and are continuing to move lower. Remember the COVID bear market? We would have one day of strong selling and then another of strong buying... over and over. Try to tame your "FOMO" emotions (Fear of Missing Out) and get in touch with the emotions you felt at today's low. Consider this short-term strength an opportunity. I'm in the process of paring back my exposure and selling into strength makes that much easier. Currently I am at 15% exposure with the intention of paring it back to 5%.
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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.
Yields were mixed today with the 10/20/30-year yields rising slightly and the others continuing their decline.
10-YEAR T-BOND YIELD
After forming a reverse island, $TNX found support at the April/May/October/November tops. This support level is bolstered by the 20-day EMA and the rising bottoms trendline. The indicators are very bearish right now suggesting this level may not hold; however, we believe that rates will continue higher or possibly consolidate along this support level.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP is about as neutral as it gets. It is traveling within a symmetrical triangle and hasn't made much headway. The indicators are about as neutral as it gets, but I do see a slight bullish bias given the RSI and Stochastics are positive and rising slightly. Intraday price did slip above the declining trend, but a black filled candlestick is bearish indicating we will probably see lower prices tomorrow.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold finished higher today despite a good day for the Dollar. Overhead resistance is strong, but given the positive RSI and PMO rising, we expect a breakout. Stochastics are above 80 which implies internal strength.
Full Disclosure: I own GLD.
GOLD Daily Chart: Discounts have pared back considerably. This tells us that investors are more bullish on Gold. That should help, but remember sentiment is contrarian. If we see a pronounced decline or premiums that might be a problem rather than help. We do expect to see Gold test $1880.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners were down significantly today but benefitted from today's late day rally. We now have a 'hammer' OHLC bar. That means a long tail to intraday lows and a finish at the top of the range. This is one of the few industry groups that look somewhat healthy. We expect Gold to continue to rally, but Miners will have the headwinds of the market to deal with too. Participation isn't showing improvement yet. Stochastics have turned down and the RSI while positive, is heading lower as well. The PMO is not bad. It has flattened and tipped over slightly, but all things considered, the group still has promise as it nears support at $30.
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 had a successful test of support today and while it closed lower, it remains inside a short-term rising trend channel. This support level should hold. The very short pullback has helped the RSI move out of overbought territory. Despite the decline, the PMO is still rising. I expect to see price rebound off this level.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: Giant bearish engulfing candlestick on TLT today. This comes just as price is testing overhead resistance at the 20-day EMA and the November lows. The PMO was attempting to turn back up, but has flattened. The RSI failed to reach positive territory above net neutral (50) before turning back down. Stochastics are positively rising, but haven't reached above 50 yet. Our sense is that yields are going to continue higher and that will prevent Bonds from making much of the current rally.
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Topic: DecisionPoint Trading Room
Start Time: Jan 24, 2022 09:00 AM PT
Meeting Recording Link.
Access Passcode: January@24
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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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