Rotation out of the growth area of Technology couldn't be more clear these days. Inflation beneficiaries of Energy and Consumer Staples as well as rising rate beneficiary, Financials are leading. I've heard many discussing the "bargains" available in this sector, but be careful, the XLK chart suggests further downside ahead.
XLK failed to overcome resistance at the 20-day EMA and is now headed toward support at $150. It certainly could find support there, but given the ugly bearish bias "under the hood", I'm not so sure. The RSI is negative and not yet oversold. The PMO is accelerating lower and also is not oversold. The SCI is trending lower and the OBV is confirming the current declining trend. Even the foundation in the long term is deteriorating. The GCI has flattened and with fewer stocks > 200-day EMAs, it is likely to turn down. Participation of stocks > 20/50-day EMAs is also deteriorating. The %Stocks > 20-day EMA is oversold but still pointed lower. %Stocks > 50-day EMA is not yet oversold. Bottom line: Technology is approaching strong support but participation suggests a strong bearish bias which could easily lead to a breakdown at this level. Be careful bottom fishing in this sector.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
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): As noted in the opening, the strongest relative performers are XLF, XLE and XLP which are traveling in the bullish northeast direction within the Leading quadrant. XLI and XLB are in Leading and still bullish. XLU is the only sector in Weakening, but it is trying to reverse and head toward Leading. XLY has been in the Improving quadrant, but its heading suggests it will enter Lagging or Weakening soon. All other sectors are bearish configured.
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 failed to hold the 20-day EMA as support and is now testing the 50-day EMA. The RSI just hit negative territory below net neutral (50). The PMO is accelerating lower.
Stochastics are neutral and not helpful right now. So far the intermediate-term rising trend channel is holding up, but price is headed down to test the bottom of it. Total Volume was elevated, but we didn't detect a climax day.
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.
Interestingly, the SCI turned back up today while the GCI which had been rising was flat. Readings are above 70% and bullish.
S&P 500 New 52-Week Highs/Lows: New Highs expanded today, but remember these intraday numbers. More than likely many of those fell victim to the late afternoon acceleration of today's decline. The 10-DMA of the High-Low Differential continues lower which is bearish.
Climax* Analysis: No climax today. The VIX dropped below its moving average on our inverted scale which suggests internal weakness. We do note that the Bollinger Bands have squeezed together so we will have to take penetrations of the Bands with a grain of salt.
*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 NEUTRAL.
I find it fascinating that the STOs are both on the rise after today's decline. The STO-V is getting overbought, but the STO-B is still in neutral. Only 44% of the SPX have rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM and ITVM are still mixed. The ITBM is declining and the ITVM is rising. Both indicators are now very overbought. We now have less than 50% of stocks with PMO BUY signals.
Bias Assessment: Participation deteriorated today leaving us with a bearish bias in the short term. The bias in the intermediate is bullish given the SCI is above 70% and rising again. The bias in the long term is bullish given the 81% GCI reading, but it could deteriorate given fewer stocks are above their 200-day EMAs.
CONCLUSION: Technology stocks led today's decline as more investors rotate out of growth stocks. I had expected we would eke out at least another day of higher prices, but no. Indicators are somewhat mixed which isn't very helpful. There was no downside climax today, but the sell off into the close suggests the last two days could be chalked up as a dead cat bounce. While I did expand my exposure to 30%, I have tight leashes and that may change tomorrow. I'm heavy on Materials and Energy right now and so far that is working out.
I am 30% exposed to the market with 70% in cash and readily available to trade.
Have you subscribed the DecisionPoint Diamonds yet? DP does the work for you by providing handpicked stocks/ETFs from exclusive DP scans! Add it with a discount! Contact email@example.com for more information!
Bitcoin gave back about half of its gains since bottoming. The indicators were beginning to improve, but the RSI turned down. The PMO has flattened and isn't helpful. Stochastics tell us that the rally isn't likely over, but seeing price turn down at the 20-day EMA and resistance at the December lows make it look less bullish.
Yields are pulling back, but all remain above their November highs.
10-YEAR T-BOND YIELD
$TNX continued its decline but is approaching strong support at 17.0. The PMO is still rising and the RSI is still positive. Stochastics however are suggesting this level of support may not hold.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar dropped below its short-term rising trend and is headed toward support at the 200-day EMA. The indicators are very negative and support that conclusion.
This rising trendline didn'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 we would've expected Gold to benefit. It fell, but indicators are still looking positive. Today's candlestick is a bullish hammer so we should see Gold rise tomorrow.
GOLD Daily Chart: Discounts had been paring back suggesting investors were more bullish on Gold. Overhead resistance held, but as noted above, the indicators are still positive enough to expect Gold to continue higher.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners pulled back to the 50-day EMA. The one indicator that bothers me most is the SCI which ticked lower today, still participation of stocks > 20/50-day EMAs is higher so we will continue to look favorably at GDX.
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 broken above the bearish rising wedge, but today price pulled back after testing overhead resistance at the October high. Indicators are showing no damage, but there is a bearish engulfing candlestick that suggests price will fall again tomorrow.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: BUY as of 11/5/2021
TLT Daily Chart: TLT managed to push past resistance. With rates beginning to fall, we are seeing Bonds rising again. The indicators are improving, but I don't believe we will see rates fall much further and that will put pressure on Bonds in general.
Stochastics are very favorable as they move out of oversold territory and the RSI is rising again. The PMO is attempting to bottom. Technically the chart is sound, but as I mentioned earlier, I don't think rates will fall much further.
Technical Analysis is a windsock, not a crystal ball.
(c) Copyright 2022 DecisionPoint.com
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.
Helpful DecisionPoint Links:
DecisionPoint Alert Chart List
DecisionPoint Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.