We will discuss the climax later in the report. Let's start with another sector that managed to trigger a BUY signal, Consumer Discretionary (XLY). Obviously a PMO BUY signal is positive, but what do we see "under the hood"?
Price gapped up and traded completely above the 20-day EMA which is very positive (although it does open us up to a possible island reversal). The RSI hit positive territory above net neutral (50). I very much like the Silver Cross Index (SCI) crossing above its signal line today. You'll note a big increase in %Stocks > 20/50-day EMAs that put those readings well above the SCI. That gives XLY a bullish bias in the short term. Given the SCI is so low (bearish readings are below 70%) the intermediate-term bias is still bearish, but with the new SCI crossover, that is definitely improving. The Golden Cross Index (GCI) has paused its decline, but at 59% it is still a bearish bias for the long term, particularly since %Stocks > 200-day EMA is only 49% which is lower than the GCI. Overall I like what is happening in this sector, but it still hasn't completely broken above resistance at the December low nor the 50-day EMA. As I said with Technology (XLK) yesterday, mind your positions in this sector closely. XLK and XLY will likely be the first to fall on their face if the market winds swiftly turn negative.
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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: Today XLF turned negative as it switched to a bearish southwest heading. It is still only in Weakening and I continue to see a lot of Bank stocks in my scan results, so I don't think the sector is down for the count. XLV is the only sector in Leading but it is losing steam and could hit Weakening soon. XLK and XLY look the most bullish to me. They are in Improving and XLK could hit Leading tomorrow. XLB and XLC had a negative southwest headings in Lagging yesterday, but they are hooking around toward Improving. XLE, XLU and XLP are in Weakening. XLU and XLP could find themselves in Lagging soon, but XLE has a long way to go before we see it hit Lagging. XLRE and XLI are firmly planted in Lagging and continue to move southwest.
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: Today's gap up was impressive as investors begin to return to growth sectors and stocks. My one concern when I look at this chart is declining Total Volume on this rising trend. Additionally, price is above the 50-day EMA again, but this is where it failed last time. Gap ups also leave us vulnerable to island reversals which manifest as a gap down that leaves price in the earlier gap up as an "island".
Indicators are improving. The PMO continues to rise after its recent crossover BUY signal. The RSI has reentered positive territory above net neutral (50). Stochastics have now made it above 80. We do see that price is hung up at the prior rising bottoms trendline.
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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 continued higher after its recent bottom, but still remains at an anemic 44%. Still, this bottom is at typically oversold territory. The GCI ticked upward today which is very encouraging, but we need to see some follow-through. The 70%+ reading is bullish.
S&P 500 New 52-Week Highs/Lows: New Highs popped today suggesting a market climax would appear on our Climax chart. It did.
Climax* Analysis: We had strong climactic readings across the board today, giving us an upside initiation climax. We are calling it an initiation because price was technically in a declining trend prior to today's action. The VIX is getting closer to the upper Bollinger Band on our inverted scale. A puncture of that Band generally leads to a downside reversal. It's not there yet and is rising nicely which is bullish.
*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 turned up and that immediately had me bullish in the shorter term. They are still technically neutral but this is very encouraging. Additionally, we have over 80% of stocks with rising momentum. That can keep a rally going.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
The ITBM/ITVM are still in negative territory, but both are contracting and leaving oversold territory. %PMO crossover BUY signals is rising strongly and isn't overbought. The intermediate term is looking bullish.
Bias Assessment: The short-term market bias is now strongly bullish given we have excellent participation of stocks > 20/50-EMAs. As noted earlier, the intermediate-term bias is bearish based on the SCI reading, but it is improving and had a positive crossover so I read the IT bias as neutral to bullish. Long term, the GCI has a bullish reading > 70%, but we still need to see more stocks > 200-day EMAs. However, that number is improving leaving us with a bullish long-term bias.
CONCLUSION: Indicators are flashing that we should see higher prices. Participation is strongly improving in the short and intermediate terms. Add to that today's upside initiation climax and we have a recipe for a lengthy rally. It is still difficult to get bullish given so many outside influences globally and economically that the market and investors are particularly sensitive to. I haven't even used the word "bubble" yet and we know multiple bubbles have formed. Yet, I remain true to my indicators; they've served me well. They are telling me more upside is ahead in the short term. I am 20% exposed to the market. If we see a follow-through day tomorrow I may expand it a bit further.
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Yesterday's comments still apply:
"Bitcoin managed to peek above resistance at the mid-January high, but closed below it. With indicators still looking very bullish, I expect to see a move to the 200-day EMA next."
Yields moved higher. Shorter-term yields are in a parabolic move to the upside. Normally we would look for a crash, but we expect them to rise even further.
10-YEAR T-BOND YIELD
$TNX nearly broke out of a bearish rising wedge yesterday, but finished inside. Today it moved back into it completely. There is short-term weakness appearing with the RSI and Stochastics topping, but they are both located in positive territory. The PMO was unfazed by today's decline and continues to rise. We could see a pause here or small decline. I'm looking for a test of the bottom of the wedge and the 20-day EMA at worst.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Yesterday's comments still apply:
"UUP is clinging to its rising bottoms trendline. However, indicators are still very negative so we don't expect to see a rally yet."
"In the longer-term, you can see a bearish rising wedge developing."
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold saw a new PMO crossover BUY signal. The Dollar still looks very negative so we expect Gold to continue higher. It has nearly recaptured the earlier short-term rising trend. The RSI is positive and rising as are Stochastics.
GOLD Daily Chart: There is now a large symmetrical triangle on the $Gold chart. The question is which way it will break. They can break either way, but they are considered continuation patterns so the prior trend is your guide to the breakout. Unfortunately Gold was relatively directionless this year. I am considering the October/November rally as the precursor to this pattern so I would look for an upside breakout.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners pulled back slightly after encountering resistance at the 200-day EMA. With Gold looking particularly bullish, I expect Miners to break above the 200-day EMA. %Stocks > 20/50-day EMAs has improved greatly and is well-above the SCI so there is a short-term bullish bias.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO is now testing the bottom of a bearish rising wedge. The indicators are softening as the PMO and Stochastics have topped. The RSI is very overbought. The wedge implies a breakdown and USO has been on a long rally out of December lows. If we see a breakdown, I don't expect price to break below the October/November highs, but we could see a test of that level if/when this rising trend is broken.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT managed a small gain today as the 20-year yield paused. There is now a bearish filled black candlestick that implies downside tomorrow. Indicators are trying to firm up, but still look bearish.
Given this level of support didn't hold, the next signpost on the way down would be support at $134.
All My Best,
Technical Analysis is a windsock, not a crystal ball. -- Carl 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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