We had another climax day today, but we'll get to that later. Looking at the 5-minute candlestick chart of the SPY, we can see that trading was volatile in the morning, but settled down and moved mostly sideways until the last hour where buyers came flying in. You'll note the breakout confirmed the bullish ascending triangle pattern. Moving into tomorrow, we do see a 5-minute PMO crossover BUY signal and a positive 5-minute RSI. I look for "buy points" when both of those conditions are met (PMO crossover BUY and positive RSI). The PMO certainly suggests this late day rally will see a continuation tomorrow.
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: I'm not surprised when I look at the RRG. When I prepare to write DecisionPoint Diamonds, I run my exclusive scans and analyze the results. There was a very heavy presence of Technology (XLK), Healthcare (XLV) and Consumer Discretionary (XLY) stocks. These sectors have the most bullish configuration on the RRG. I note that defensive areas of the market are hooking around into bearish south to southwest headings (XLU & XLP). All others are looking very weak.
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 probably should be scuttled, but technically it is still there. More importantly, we need to monitor overhead resistance at the 50-day EMA and $455 level. Notice that volume is tapering off as the rally continues.
The PMO is rising, but the RSI is negative and flat. Stochastics look promising as they have now reached positive territory. Price is also getting close to the bottom of the prior intermediate-term rising trend channel.
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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 rose slightly today, ending their decline for now. Given they are both in somewhat oversold territory that is a definite plus.
S&P 500 New 52-Week Highs/Lows: We still see the positive divergence between New Lows and price bottoms. Carl and I talked this morning about what signs 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, but hasn't turned back up yet.
Climax* Analysis: We had some climactic readings, but the indicators were not unanimous. Nevertheless, we will call it another upside exhaustion climax, looking like the end of the thrust that began last week. The VIX is now above its MA on our inverted scale which suggests internal strength is building. The rally may not be done yet.
*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 now in positive territory and rising. This suggests we will continue to see higher prices. With 2/3rds of the SPX having positive momentum that makes sense.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERSOLD.
IT indicators remain oversold, but are rising again. I was looking at the bear market rebound in 2020 as a touch point for what we're seeing now. However, price closed above the 20-day EMA this time around.
Bias Assessment: The short-term bias is now moving bullish given participation of stocks > 20-day EMAs is higher than the SCI reading. %Stocks > 50-day EMA is still just below the SCI, but it is improving so the intermediate-term bias is neutral to bullish. 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.
CONCLUSION: We are seeing indicators rising out of oversold territory, a bullish VIX and broad participation. I expect that the rally will continue, but may slow its pace. While exploring "Diamonds in the Rough" today, I noted that most were up well over 1% in after hours trading (with the exception of PayPal PYPL which was down over 17% in after hours trading last time I looked after reporting earnings). I believe the rally is going to continue, but given the exhaustion climaxes yesterday and today, the rally could cool quickly. I will probably expand my exposure somewhat tomorrow if internal strength holds, but I don't plan on increasing it past 25%.
I'm currently 8% exposed to the market with 92% in cash and readily available to trade.
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Yesterday's comments still apply:
"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."
Longer-term yields are consolidating. We expect this to be a short-term condition with yields eventually testing May highs.
10-YEAR T-BOND YIELD
$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 is dropping quickly after breaking out above the November/December highs. The PMO is flat and the RSI is nearing negative territory. Most bearish are Stochastics which have dipped below 80 and are falling. I would look for a test of the 50-day EMA and the December low.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold rallied somewhat, but closed below its open, forming a bearish filled black candlestick. Price wasn't able to close above the 200-day EMA. However, with the Dollar looking more bearish, Gold should benefit and rise higher. Stochastics have turned back up and the RSI is attempting to reach positive territory again. The PMO is flattening. We have a positive divergence with discounts on PHYS and price lows so we are bullish on Gold.
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 weakening Dollar, this support level should continue to hold.
GOLD MINERS Golden and Silver Cross Indexes: Miners continue to rally but have now reached overhead resistance at the 20/50-day EMAs. The SCI is flat, but participation is now higher in the short term (%Stocks > 20-day EMA is greater than the SCI) and even in the intermediate term (%Stocks > 50-day EMA). I expect to see the rally continue.
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: 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 resulted in much and NOW they have topped. The PMO is crossing over its signal line, but the RSI is firmly in negative territory.
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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Price Momentum Oscillator (PMO)
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