I'll talk about today's upside climax in the section on Climax Indicators. While in the free DecisionPoint Trading Room this morning, I reviewed our sector charts and looked at Technology in particular. At the time I didn't have fresh readings "under the hood" on Technology. Now I have participation readings. Notice how %Stocks > 20/50-day EMAs shot up and are now reading above the Silver Cross Index (SCI)--that gives XLK a bullish short-term bias.
The bias in the intermediate term is still bearish given the SCI is reading well below 70%. The long-term bias is bullish (GCI at 70%), but given there are fewer %Stocks > 200-day EMAs in comparison to the GCI... that bullish bias is deteriorating. The breakout above the 20-day EMA and resistance at the August high is very encouraging. The PMO has turned up and Stochastics are rising so we have some internal strength building. However, don't get too excited. Remember when the market is bearish or stepping into a bear market, oversold conditions should be considered "thin ice". Enjoy this short-term strength, but know that the intermediate-term bearish bias is still there.
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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: The most bullish sectors appear to be XLU and XLV which are in Leading and traveling with a bullish northeast heading. Close behind are XLK and XLRE which have a bullish northeast heading that should take them into Leading soon. Relative strength is waning already for XLC. While it is still in Leading, it will likely hit Weakening or even Lagging tomorrow. XLY is the most bearish currently as it is the only Lagging sector and still is moving west. XLI, XLB and XLF are losing strength and are Weakening. XLE is overbought and is turning over a bit which explains its southwest bearish heading.
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: Since last Thursday we have been seeing a reverse flag formation on this chart. Today SPY broke out of that flag, the opposite of what we would expect, so we will abandon that interpretation for now. This is a strong resistance level so a pullback is not out of the question. That would keep price within this "flag".
Indicators are improving with the RSI nearing positive territory and the PMO turning up. Stochastics have been favorable for a week or two.
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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.
Both the SCI and GCI continued lower by a fraction. The SCI is oversold for a bull market, but not for a bear market.
S&P 500 New 52-Week Highs/Lows: There is still a positive divergence between New Lows and price lows. The 10-DMA of the High-Low Differential is oversold, but hasn't turned up just yet.
Climax* Analysis: Today was a climax day. Since it followed Friday's upside initiation climax, we have to call it an upside exhaustion climax, but the rally could continue. We'll have a better idea based upon how the market opens tomorrow. The VIX is rising on our inverted scale suggesting investors are less fearful, but until we see it get above its EMA, the market is still vulnerable in the very short term.
*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.
These indicators hit extremely oversold levels and needed unwinding. This pause and rally did the job and moved them into Neutral. They are now ready to accommodate more downside and not get oversold right away. However, participation really improved. We now have over half of the SPX with rising momentum and now over 1/3rd of the SPX are back above their 20-day EMAs.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
All of our intermediate-term indicators improved today and they remain in oversold territory. They still aren't as oversold as they can be, particularly in a bear market environment, but a solid reversal here could indicate we will see higher prices past the short term.
Bias Assessment: We still see a bearish bias in all three timeframes; however, it is moving more neutral as participation improves. The bias will move bullish in the short term when we see higher %Stocks > 20/50-day EMAs in comparison to the SCI reading. The same goes for the long-term bias... it is at a bullish 70%+ reading, but there are fewer stocks > 200-day EMA and the GCI is declining. This could change very soon.
CONCLUSION: Friday's upside initiation climax played out as expected; although admittedly neither Carl nor I expected the thrust of today's upside move. With elevated Volume Ratios, Total Volume and Breadth we assigned today as an upside EXHAUSTION climax. This tells us to expect lower prices over the next day or two. I've been looking for "churn" in the form of price movement between $420 and $450 for the SPY. If we see overhead resistance shattered here, the bearish bias will disintegrate in the short term. We are still bearish in the intermediate and long terms based on the breach of the 200-day EMA. I'm keeping my exposure low, currently at 8%.
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BITCOIN
Bitcoin continues to rebound off $32,500. I would look for resistance to hold here. Yes, the PMO is on a crossover BUY signal, but we can see three signal failures in the last month and half. The RSI is negative. Stochastics look promising, but until overhead resistance is cleared at the 20-day EMA and September lows, I'm still looking for a test of $30,000.
INTEREST RATES
Longer-term yields are consolidating. We expect this to be a short-term condition with yields eventually test May highs.
10-YEAR T-BOND YIELD
No change for $TNX today so it remains above support and in a rising trend. The PMO is going in for a crossover SELL signal and Stochastics are falling. Support is still very strong though in the zone between 17 and 17.50.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: After gapping up, the Dollar lost support. It has now closed the original gap suggesting price will continue lower. The RSI is positive but falling. The PMO is now topping already and so are Stochastics.
We don't see the Dollar completely falling apart right now. Most likely we'll see price action similar to December.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: With Dollar moving lower, Gold took advantage. The RSI is beginning to rise out of negative territory. However, Stochastics and the PMO aren't quite on board. Still we are looking for Gold to move higher as we have a positive divergence with Discounts now.
Full Disclosure: I own GLD.
GOLD Daily Chart: $1780 is holding up as support. It's now time for price to vault key moving averages. Given the PMO SELL signal, we may have to wait a bit longer. Worst case, $1760 should hold up.
GOLD MINERS Golden and Silver Cross Indexes: Miners enjoyed a rally with Gold moving higher and the market rallying strongly. Participation is beginning to improve, but we still have a bearish bias given %Stocks > 20/50-day EMAs are lower than the SCI reading.
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 is pausing after failing to test the top of the rising trend channel. It is very overbought and the PMO is decelerating. Stochastics are very bullish. We expect prices to ultimately continue higher, but we also expect some rotation out of Energy as growth stocks are finding favor during this short-term rally. I would look for more sideways movement or a drop to test the October high.
The chart is still bullish overall, just overbought.
BONDS (TLT)
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: As long-term yields bounce around, TLT is moving sideways below resistance at the 20-day EMA and November lows. Stochastics have been rising for 2 weeks, but it hasn't amounted to much. The PMO is crossing over its signal line, but like with Stochastics, we don't think we will see much upside here overall.
Technical Analysis is a windsock, not a crystal ball.
--Erin 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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