As I prepared my "Diamonds in the Rough" stock picks, I always list what the stock is currently doing in after hours trading. I noticed that many of the stocks were trading much lower in after hours trading. I pulled up the 5-minute candlestick chart below and it all became clear, the SPY took back all of today's gains. It appears the rally might be exhausting; however, the 5-minute PMO is back on a crossover BUY signal.
Here is the after hours chart for Technology (XLK) which has been leading the market higher. I feel better seeing this chart given the quick recovery and the very positive PMO.
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: XLK and XLV look the most bullish with their northeast headings. All other sectors are losing relative strength and are traveling south, west or southwest. All are less than bullish. However, if we are to see continued strength in XLK, an aggressive sector, we could eke out some more gains. We just need to be mindful when it changes direction again (that's why you have me!).
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: The bear flag has busted. The SPY closed above overhead resistance at the earlier January low and 50-day EMA. That is highly encouraging. Add to that, a now positive RSI that is rising and a nearing PMO crossover BUY signal and we should see higher prices. I also note that Total Volume was up slightly too.
Stochastics are rising in positive territory and the VIX remains above its moving average on the inverted scale. Both imply internal strength.
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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.
The SCI and GCI are continuing higher and remain oversold near term. The SCI is below 70% which is bearish, but if it continues to rise, we would look at it as more neutral than bearish. The GCI is above 70% which is bullish and is rising which is encouraging in the long term.
S&P 500 New 52-Week Highs/Lows: We still have a positive divergence between New Lows and price bottoms. Carl and I talked yesterday about the signs that led us to believe the 2020 bear market was over. One of the major signals were positive divergences with New Lows. The 10-DMA of the High-Low Differential is very oversold and turned back up which is bullish.
Unfortunately, we didn't get a positive divergence on the NYSE New Lows before this rally, so we like the SPY NHNL chart, but we have to temper our excitement when we look at this one.
Climax* Analysis: SPX Total Volume was strong, but there were no other climactic readings today. I do note that the VIX closed slightly higher today, but it stayed completely above its moving average on the inverted scale.
*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.
STOs are already starting to get overbought which is bad news. When these indicators turn south, the rally could be over in the short term. %Stocks > 20-day EMA and %PMOs Rising are bullish and not overbought. This chart tells me there is more upside to be had, but maybe not much more.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERSOLD.
IT indicators are still oversold and rising. One quarter of the SPX now have PMO crossover BUY signals which suggests higher prices ahead.
Bias Assessment: The short-term bias is bullish given participation of stocks > 20/50-day EMAs are higher than the SCI reading. Long-term participation is improving with over 60% of stocks > 200-day EMAs. With the GCI rising and at a bullish 76%, we would read the long-term as a neutral to bullish bias. Until we have more stocks > 200-day EMAs, the GCI is vulnerable to a downturn.
CONCLUSION: The rally continued. We didn't see the upside exhaustion climaxes do much. In hindsight they probably were part of the initial upside initiation climax. The market took back all of today's gains in after hours trading which is troubling. However, all of our indicators are bullish and rising. This has been a hot rally and likely needs to cool off. As long as short-term indicators continue rising, I will stay bullish. I expanded my exposure to 20% today. I now hold a position in all sectors with the exception of Discretionary, Real Estate and Communication Services. I don't think I will expand exposure past this level. All of these investments are short-term with the exception of Gold (GLD).
I'm currently 20% exposed to the market with 80% in cash and readily available to trade.
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Bitcoin hit resistance at the 20-day EMA and turned down. This is exactly what I have been expecting. I also notice that it turned down at the declining tops trendline. I'm still looking for a test of $30,000. We have a bullish falling wedge now and I believe that supports my hypothesis that once $30,000 is hit, buyers will come in.
Longer-term yields are consolidating. We expect this to be a short-term condition with long-term yields eventually testing May highs.
10-YEAR T-BOND YIELD
Yesterday's comments still apply:
"$TNX dipped below the rising trendline, but rebounded to close above it. It also held the 20-day EMA and support at the March high. Stochastics are negative, but flattening. The PMO is trying to avoid a crossover SELL signal. The RSI is positive. Overall, I expect this support level to hold."
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar continued to slide and has now landed on the 50-day EMA. I don't believe it is done declining. Notice the RSI just moved into negative territory and the PMO is now moving lower toward a crossover SELL signal. Stochastics are ugly and we can see that the decline has been on very high volume. I doubt it will hold the longer-term rising bottoms trendline.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: GLD rallied despite yesterday's bearish filled black candlestick. We didn't see a close above the 50-day EMA, but price did foray above it. We can see a positive divergence between sentiment (discounts) and price lows that led into this current rally.
Full Disclosure: I own GLD.
GOLD Daily Chart: Discounts are rising again, but not by much. Still rising discounts suggest investors might be getting bearish again on Gold. Indicators are positive so I would look for a break above key moving averages.
GOLD MINERS Golden and Silver Cross Indexes: Miners continue to rally but have now reached overhead resistance at the 20/50-day EMAs. The bias had begun to get bullish, but participation of stocks > 20/50-EMAs is below the SCI again. Stochastics are encouraging, but the RSI and PMO are still looking negative.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:
"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, but I note the PMO is flattening in overbought territory.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: TLT finished higher, but closed near its low for the day, leaving a long wick on today's candlestick. That is a bearish configuration. The RSI remains negative, but is rising. We got the PMO crossover BUY signal, but Stochastics have turned down before reaching above 80. Overall we are neutral on Bonds. We aren't expecting a big breakdown here, but likewise, we don't expect a breakout.
Technical Analysis is a windsock, not a crystal ball.
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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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