It was another day where on the west coast we left for lunch with the market up slightly and came back to see an amazing late day rally. The market eventually finished up +2.48%. We think this late day rally will materialize with a rally next week. We are calling it a "bear market rally" because we don't believe the selling is over. Today the market was goosed by strong buying on Apple (AAPL) and Visa (V). We saw a climax day!
Financials (XLF) had a "dark cross" of the 20/50-day EMAs. This generated an IT Trend Model "Dark Cross" Neutral Signal. The chart doesn't look terrible, the signal was triggered because price was unable to push past resistance at the 50-day EMA. We are actually seeing some improvement in participation of stocks > 20/50-day EMAs; however, the Silver Cross Index (SCI) topped below its signal line. Still, price has found support at December lows and the 200-day EMA. The RSI is rising. The PMO and Stochastics haven't really improved enough for us to be bullish on Financials.
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
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: On the daily RRG, four sectors look especially bearish: XLY, XLB, XLI and XLF because they are traveling with a bearish southwest heading. XLI isn't too terrible given it is still holding in Leading, but its deterioration is concerning. Up and comers are XLK, XLRE and XLV. All three have bullish northeast headings and are in Improving. XLE still shows leadership, but relative strength is diminishing somewhat given the southward heading. XLU and XLP are looking fairly good as they sit in Leading. However, they are hooking around toward Weakening. XLC which amazingly entered Leading, is headed south and could end up in Lagging given its southwest heading. XLY is the clear loser here.
Intermediate-Term (Weekly) RRG: The longer-term RRG shows only two sectors with a bearish southwest heading, XLY and XLK. We know from the daily RRG that XLY is in trouble in the short term, this confirms the short-term weakness and suggests further weakness ahead. Strong performers are the defensive XLU, XLRE and XLP. XLE is in a class by itself on the longer-term RRG, but XLP is gaining. XLC is still in Lagging but is making a run at reaching Improving given its northward heading. XLB is a bit of a problem. While it is in Leading, it is traveling bearishly southward. The remaining sectors are in Improving and have a bullish northeast heading: XLF, XLV and XLI.
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: Today belonged to Visa (+10.6%) and Apple (+7.0%), two of the largest stocks in the S&P 500 Index; nevertheless, the advance was broad. Even so, price remains within the bearish reverse flag formation.
The RSI is rising out of oversold territory and the PMO is turning back up. Stochastics are favorable as they rise out of oversold territory.
SPY Weekly Chart: The weekly chart looks much better than it did last Friday given the positive close on the week. However, very important support at the 43-week EMA has been broken. If history is our guide, bear markets generally begin with this breach. The positive close didn't change the negative weekly PMO, but the weekly RSI did tick higher.
SPY Monthly Chart: The last trading day of the month is Monday, but we'll cover the monthly charts today. Note that price has broken down from the parabolic rise, and the monthly PMO has topped (not likely to reverse Monday). These are strong negative signs and imply much lower prices in this time frame.
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 now in oversold territory for a bull market. Bear market "rules" tell us that oversold conditions in a bear market should be considered "thin ice" or not a solid foundation. Based on readings from the 2020 bear market and 2018 bear market, neither of these indicators are truly oversold.
The following table summarizes participation for the major market indexes and sectors.
New 52-Week Highs/Lows: We noted a positive divergence on the New Highs/New Lows chart for the SPY, but we don't completely trust it past the very short term. Look at the NYSE's chart... no positive divergences there.
Climax Analysis: With climactic readings across the board, today was an upside initiation climax, which implies more price advance to come next week. That supports our thesis of a bear market rally ahead.
*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.
The short-term indicator chart also supports our thesis of a bear market rally. These indicators are contracting out of oversold territory. We also saw a marked increase in stocks > 20-day EMA. Additionally almost one third of the SPX have rising momentum. Notice that this week we had plenty of downside, but the STOs contracted. All of these short-term indicators can clear oversold conditions fairly quickly, even with churn or sideways movement.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
These indicators continued lower. They are all oversold, although we would again point out readings from 2018 and 2020. They can get more oversold which means they can accommodate more downside.
Bias Assessment: This week the market bias remained negative in all three timeframes. Participation of stocks > 20/50-EMAs are less than the SCI reading which is bearish. However, participation is improving quickly in the short term so this can be read as short-term bullish. Even in the intermediate term, the SCI is bottoming which is bullish despite a reading below 60%. The long-term bias is neutral. The GCI is above 70%, but there are far fewer with price > 200-day EMA. The GCI is not turning up, but given we did see slight improvement of stocks > 200-day EMA, we read this as neutral.
CONCLUSION: It's been a rocky week with price moving quickly in both directions. Today we had an upside initiation climax which suggests higher prices in the next trading day or two. Short-term indicators are also confirming a rally ahead. However, intermediate-term indicators remind us that this is still a bear market environment. Rallies do happen during bear markets, so enjoy any short-term strength next week. We do caution that any positions you currently hold should be managed in a short-term timeframe based on "bear market rules"--that includes "buy and hold" positions. Erin has pared back to 8% exposure to the market with no plans on increasing.
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Bitcoin appears to be bottoming. Indicators are improving. This doesn't look like a sturdy area of support. We expect it to fail at the 20-day EMA with a likely move down to 30,000. We now have a massive bearish head and shoulders pattern.
Rates finished the week where they started (mostly). For long-term yields, support is here at prior January lows.
10-YEAR T-BOND YIELD
After pulling back to support at the October/November highs, $TNX bounced and is holding a short-term rising trend. The RSI and Stochastics are in positive territory but declining and the PMO is topping again. We could see another test at 17.0.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP broke out strongly yesterday and digested the move today. There is a high likelihood that this is a reverse island setting up. That implies a gap down ahead. Granted indicators are still quite positive, but we should be prepared nonetheless as the RSI is flattening.
UUP Weekly Chart: The weekly chart looks excellent with this week's breakout being accompanied by a weekly PMO bottom above the signal line and rising/positive RSI.
UUP Monthly Chart: The monthly chart is the reason we should prepare for a possible island reversal. This is a very strong area of overhead resistance. Although the monthly RSI and monthly PMO look bullish. If the breakout holds, upside potential is around $27 (just above the 2020 closing highs).
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GOLD Daily Chart: While gold fell the last three days of this week, we note that sentiment became significantly less bearish. Price closed below support and the PMO triggered a crossover SELL signal today. The RSI is negative.
When you look at the $GOLD chart, the breakdown is significant but is at support 1780. We would point you to March/April of 2021. Notice that we had a positive divergence between discounts and price lows. This could be a similar setup but indicators aren't in line.
GOLD Weekly Chart: We have a large symmetrical triangle on the weekly chart. The weekly RSI just moved into negative territory and the weekly PMO tipped over. Symmetrical triangles are typically continuation patterns, meaning the prior trend reveals the direction of the breakdown or breakout. In this case, the rising trend out of the 2018 lows suggest an upside breakout.
GOLD Monthly Chart: The monthly chart is mostly neutral. The monthly PMO is declining, but the monthly RSI remains positive. Notice the correlation to the Dollar is nearly zero in the long term. That could work in Gold's favor if the Dollar breaks out in the long term.
GOLD MINERS Golden and Silver Cross Indexes: The drop in Gold devastated the Gold Miners. They are nearing support and based on the PMO SELL signal, negative RSI, falling Stochastics and diminishing participation, we would look for price to move to the September low.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil was up on the week. USO has now formed two filled black candlesticks. Those are bearish candle patterns. Given Oil and the Energy sector as a whole are so overbought, we would expect a pullback here, possibly to the October tops. Overall, the indicators are positive, just overbought. A pause or pullback would be helpful.
USO/$WTIC Weekly Chart: $WTIC is reaching multiyear highs, but does look tentative about breaking out above resistance at last year's high. The weekly RSI is positive and not overbought and we have a brand new weekly PMO crossover BUY signal. We expect prices to rise after a small decline. USO is up against gap resistance.
WTIC Monthly Chart: The monthly chart tells us to expect higher prices in the long term. We have a large double-bottom and a breakout above the confirmation line. $110/barrel isn't out of the question.
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: TLT has been stuck in a trading range as yields undulate up and down. The indicators are mixed with the PMO nearing a crossover BUY signal and Stochastics reaching above 80 matched against a negative/flat RSI. Yields aren't likely to reverse course so we expect overhead resistance to continue holding at $144.
TLT Weekly Chart: TLT is holding the rising trend on the weekly chart, but indicators suggest it will be broken soon. The weekly RSI just turned down in negative territory and the PMO is declining on a crossover SELL signal.
TLT Monthly Chart: The monthly chart is bearish. The monthly RSI just moved into negative territory and the monthly PMO is accelerating lower.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & Erin Swenlin
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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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