The Nasdaq 100 (NDX) had its "Dark Cross" back on January 15th. Today our three other DP Scoreboard indexes, Dow, OEX and SPX generated "Dark Crosses". A "Dark Cross" is defined as a negative 20/50-day EMA crossover. Below are the charts for the Dow Industrials ($INDU) and S&P100 ($OEX), I'll cover the SPY further down.
The Dow dropped below the 200-day EMA today and is headed toward the support zone between the June and September lows. The PMO is in negative territory and not quite oversold yet. The RSI is oversold but still declining. The picture is very bearish.
Like the SPY, the OEX broke down from its rising long-term rising trend channel. It is now testing the 200-day EMA, but strongest support lies at the October low. I doubt we will see a bounce here.
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
For the Week:
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.
For the Week:
Short-term (Daily) RRG: The RRG confirms my view that Utilities will likely see some love moving forward despite not having a good sector chart. It's been out of favor and with the market dropping, this is likely going to be an area that will see positive rotation. XLC is a surprise as it also looks short-term bullish, moving into Leading and carrying a bullish northeast heading. XLP also looks good as it has reversed direction and is traveling northeast again within Leading. XLI and XLF are losing favor and beginning to make their way toward Weakening. XLE has turned over. With Crude Oil pulling back right now, that isn't surprising. XLB should hit Weakening next week. The remainder of sectors are bearishly within Lagging. XLY is most bearish as it travels with a bearish southwest heading within Lagging. The others are moving northward toward Improving, but I wouldn't be interested in these sectors until they at least reach Improving.
Intermediate-Term (Weekly) RRG: The longer-term RRG is telling. Aggressive sectors XLK and XLY are Weakening and getting worst as they travel southwest. Defensive sectors XLP, XLU and XLRE are in Leading and have a bullish northeast heading. XLB is still in Leading but is looking a bit more bearish as it travels toward Weakening. XLE and XLP are both strongly outperforming the SPY in the intermediate term and both have a very bullish northeast heading within Leading. XLC is making a bit of a comeback, as is XLF which has an opportunity to hit Improving soon. XLI and XLV look promising as they head toward Leading out of 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: NEUTRAL as of 1/21/2022
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: Here we have the "Dark Cross" on the SPY. Like the OEX, price is testing the 200-day EMA. During options expiration week, we always anticipate that volatility will be low at the end of the week, Thursday and Friday specifically. That was not the case this week -- the spread between Thursday's high and Friday's low was almost 4%, so not low volatility. The reason we normally expect low volatility is that traders seem to prefer quiet while they roll their positions. Volume is usually high on options expiration, so we can't put too much weight on today's reading, but overall, we have been seeing high volume selling which implies more coming.
Support is available at the October lows, but momentum is accelerating lower. Stochastics appear to be bottoming, but it is an oscillator and must oscillate... it reached near zero and is flattening. Until we see a strong move upward on Stochastics, consider them bearish. The VIX dropped well-below the lower Bollinger Band on our inverted scale. This is the fourth we have seen and it has yet to resolve with a price bounce like we normally see. This freight train is going to be difficult to slow and reverse.
SPY Weekly Chart: We've been watching a bearish rising wedge on the SPY building since the end of 2020. We finally saw the breakdown that the pattern implies. The 43-week EMA is nearing as support, but we believe we are in for a bear market which means we will see that level broken. The weekly PMO is accelerating lower and the weekly RSI has entered negative territory.
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 falling fast and is at a bearish 58%. It is only going to get worse as you'll see when we talk bias. The GCI is now below 80%, but a reading above 70% is considered bullish. However, it is deteriorating and had a negative crossover today. The foundation is getting even weaker, but based on 2020 readings, neither is at all oversold.
The following table summarizes participation for the major market indexes and sectors.
New 52-Week Highs/Lows: New Lows expanded quite a bit today, but haven't reached November oversold territory. It's likely going to get much worse. The 10-DMA of the High-Low Differential continues to fall with price and is not oversold.
Climax Analysis: Today we got the fourth downside exhaustion climax in a row. You may well ask, if it's 'exhaustion', why doesn't the selling stop? Climaxes are inherently exhaustion events, although where it occurs in the price pattern can be an announcement of the initiation of a change in direction. As of today, we have to assume that more selling is on the way; although, there is no need to commit to a particular outcome until we see how the market opens on Monday.
*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.
Short-term indicators are now very oversold suggesting a relief rally might be possible. We might be fortunate to get some consolidation or a pause. That would likely move these indicators out of oversold territory. It doesn't need to be a rally that moves them out of oversold. However, until we see these indicators reverse, the short-term is still a problem.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
This is the chart that tells us we are likely entering a bear market. None of these indicators are oversold. ITBM hit negative territory, but barely.
Bias Assessment: The bias is bearish in all three timeframes. Short term we see much lower percentages of stocks > 20/50-day EMAs than the SCI percentage. The SCI is going to continue to lose ground. Intermediate-term, the SCI reading of 58% is bearish and falling. Long term, the %Stocks > 200-day EMA is lower than the GCI reading. So while the GCI reading itself is above 70% which is bullish, the deterioration of participation gives us a bearish long-term bias as well.
CONCLUSION: We are entering a bear market in our estimation. With intermediate-term indicators sitting in Neutral even after this current correction, it tells us to expect more downside which would mean a bear market. Investors haven't capitulated, but they are getting close as the selling continues. This means more selling until capitulation is reached. We have a fourth downside exhaustion climax. We know that the first three resolved with some mild buying in the AM, followed by more selling. As Erin mentioned yesterday, we will be fortunate if this exhaustion climax resolves in a pause. It doesn't seem likely.
Erin is at 20% exposure but will be paring that back to near 0% next week. She went fully into cash during the last bear market and she is ready to again.
Calendar: There is an FOMC meeting next week, with the announcement to be made Wednesday. Beginning Monday there should be no end to speculation in the media regarding potential Fed action for you to choose from.
Monday is the free DecisionPoint Trading Room. You can register at this link. It is recurring so you only have to register once. Erin gives you the low down on the market in general and the "Big Four" (Dollar, Gold, Crude Oil & Bonds), followed by symbol requests. She assists viewers on how to use a 5-minute candlestick chart to expertly time your entries and exits. Below is last Monday's recording link:
Topic: DecisionPoint Trading Room
Start Time: Jan 18, 2022 08:58 AM
Meeting Recording Link.
Access Passcode: January@18
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Bitcoin aborted the possible double-bottom that was appearing yesterday. Now it looks like a head and shoulders pattern that just broke down today. Minimum downside targets are determined by the height of the pattern. The minimum downside target of this large pattern would take Bitcoin down to 13,000. We don't believe that will happen, but certainly summer lows will be reached.
Moving back for a longer view, it looks as if the current head and shoulders formation could also be the head of a longer-term head and shoulders formation. Admittedly, its a bit early to nail anything down in that regard, but it does tell us this bear market for Bitcoin isn't likely over.
Rates dropped to finish the week. Rising trends aren't being broken, so we expect them to begin rising again soon.
10-YEAR T-BOND YIELD
The 10-year yield was looking like a reverse island as Erin mentioned after the original gap up. It resolved as expected with a gap down. This is a strong support zone and the rising trend hasn't been tested yet. The PMO is topping, but doesn't look that bearish. The RSI is falling but still positive. Stochastics are pointed down but are still in positive territory. We certainly could see more decline next week, but the indicators suggest the rising trend will hold.
MORTGAGE INTEREST RATES (30-Yr)**
**We watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. (See table.) As buying power shrinks, real estate prices will fall, and sellers will increasingly find that they are upside down with their mortgage.
The 30-year fixed rate mortgage jumped to 3.56%, up from 3.45% the week before. A mortgage payment of $2,015 will now only service a mortgage that is 10.9% less than one year ago. The Case-Schiller Index shows that real estate prices are still rising, so buyers, particularly first-time buyers, are being slowly frozen out of the market. If rates continue to rise, we can expect to see real estate prices start to fall.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar was up on the week, but didn't really do much. Indicators are mostly neutral, although Stochastics are looking soft as they topped below 80.
UUP Weekly Chart: The double-bottom nearly fulfilled its minimum upside target, but began to trend lower. price is still above support. The weekly PMO is flat on this week's positive close. The weekly RSI remains positive, but we expect a test of the 43-week EMA and the confirmation line of the double-bottom.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GOLD Daily Chart: Gold finished higher on the week after gapping up on Wednesday. Resistance was tested, but price failed to close above it. The chart looks bullish enough given the positive RSI, rising Stochastics and PMO.
The close below support on $GOLD doesn't inspire confidence, but we note that discounts continue to fall. This tells us that investors are more bullish on Gold which is good right now.
GOLD Weekly Chart: We have a large symmetrical triangle on the weekly chart. They are continuation patterns and since the prior trend was down, it suggests we might see a breakdown. However, the weekly indicators are very positive so we are watching for a breakout.
GOLD MINERS Golden and Silver Cross Indexes: Miners are one of the very few industry groups that have rising momentum. Today's deep decline wasn't accompanied by a PMO top and with our outlook on Gold bullish, we still like Miners in general. The bias is bullish in the short term given the %Stocks > 20/50-EMAs are at or above the SCI reading. Stochastics are still rising and aren't overbought. Today, GDX just barely had an IT Trend Model "Silver Cross" BUY signal generate. All of this leaves us bullish on Miners.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil is in a strong rising trend channel. It is overbought and needs more decline. Stochastics are positive but have turned down so short term, we could see price pullback to test the bottom of the channel.
This has the appearance of a bull flag on the 1-year chart. We just expect that flag to get a bit longer before price reverses higher again.
USO/$WTIC Weekly Chart: This week USO broke out above strong resistance. It is now up against gap resistance from the 2020 bear market drop. Given the brand new weekly PMO crossover BUY signal, higher Oil prices should continue, but short-term, it needs a bit more downside.
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: Bonds rebounded this week as the 20-year yield dropped. It is up against short-term resistance at the 20-day EMA and last week's high. We expect it to be stout, but indicators beginning to improve somewhat, so a breakout isn't out of the question.
TLT Weekly Chart: The long-term rising trend is being compromised and the weekly PMO has generated a crossover SELL signal. A cursory look at the 20-year yield shows a double-bottom and a slight breakout this week above the confirmation line. We expect Bonds to continue to trend lower.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & 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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