We had three new Price Momentum Oscillator (PMO) BUY signals trigger on positive crossovers today, the SPY, Technology (XLK) and Healthcare (XLV) sectors. I'll talk about the SPY later. Let's look "under the hood" to see whether these PMO BUY signals mean more upside for both sectors. On the DecisionPoint.com website, subscribers have access to our "under the hood" sector charts so be sure to review this chart list frequently.
Technology is actually pulling back a bit after failing to overcome resistance at the 50-day EMA. Despite a strong rally today, price closed below the 20-day EMA. The PMO may've triggered a BUY signal, but the RSI is still in negative territory suggesting price weakness. There are pluses beside the PMO BUY signal. Participation of %Stocks > 20/50/200-EMAs is rising. %Stocks > 20/50-EMAs are higher than the Silver Cross Index (SCI) reading. This tells us that the SCI should continue to move higher since it measures %Stocks with a 20-EMA > 50-EMA. The Golden Cross Index (GCI) is still in decline and the %Stocks > 200-EMA is less than the GCI. This tells us that the long-term bias and foundation are bearish. Be careful with your positions in this sector.
XLV is consolidating sideways instead of in a declining trend like XLK. The RSI on XLV is positive as it rises above net neutral (50). The SCI is about to cross over its signal line. %Stocks > 20/50-EMAs are both well-above the SCI reading suggesting a bullish short-term bias. %Stocks > 200-day EMA is rising, but is not greater than the GCI which continues lower suggesting like XLK, there is still long-term weakness. Stochastics are rising and are above 80 which is bullish. When we compare these two sectors, XLV appears to have the stronger chart with "under the hood" indicators showing higher participation within that sector.
Conclusion: While both of these sectors are showing a strong shift in upside momentum, there are still problems, particularly in the long term. Price needs to trade completely above key moving averages on both of these sectors before we can trust them.
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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: The two most bullish sectors on the RRG are XLK and XLF. We looked at XLK under the hood and it still has some work to do. It may be showing relative strength on the RRG, but price action needs to improve. XLF is looking very strong as it rises toward Leading. Banks were today's stand outs and those charts look very favorable. I would pick XLF instead of XLK right now. XLV is still in Leading which is bullish, but it is traveling southward toward Weakening. XLY is showing signs of life as it moves toward Improving. All other sectors are configured bearishly with XLRE, XLC, XLB and XLI showing the most weakness as they enter Lagging and continue traveling in the bearish southwest direction. XLU, XLE and XLP are now in Weakening and getting worse, but so far they are avoiding the Lagging quadrant.
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: Price just barely closed above the 20-day EMA but formed a bullish engulfing candlestick, suggesting higher prices tomorrow. The PMO triggered a new crossover BUY signal today, but the RSI remains negative. Stochastics are rising which is positive, but they are taking their sweet time to get above 80 which would tell us there is internal strength. The VIX is fully above its SMA on the inverted scale which does imply some internal strength.
For now price is consolidating or churning around the December low support level and the 20-day EMA.
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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 turned up slightly today, very slightly given it is hard to decipher on this chart. The GCI moved lower by a full percentage point today. Long term, there is still weakness despite a GCI reading that is greater than 70% (that will likely change soon).
S&P 500 New 52-Week Highs/Lows: We had few more New Highs logged today and a contraction of New Lows. I still very much like the rising 10-DMA of the High-Low Differential, but I'm prepared to see similar results as in December when it began rising and price still had a deep decline.
Climax* Analysis: None of the indicators reached the climax threshold today, but we did see Total Volume above its annual average.
*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 NEUTRAL.
I don't like seeing my STOs moving lower on a strong rally day but we are seeing more stocks > 20-day EMAs and I definitely like seeing more stocks with rising momentum. The mixed indicators on this chart suggest more churn and consolidation ahead.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The ITBM/ITVM continue to contract out of oversold territory which is positive for the market in the intermediate term. We also have almost half of the SPX with PMO crossover BUY signals.
Bias Assessment: The short-term market bias is improving given the SCI is rising again and %Stocks > 20/50-EMAs are higher than the SCI percentage. Long-term the bias is neutral and deteriorating as more stocks lose support at their 200-day EMAs.
CONCLUSION: Indicators in the short term remain mixed suggesting more churn in the short term. However, improving participation including the SCI rising again has me more bullish about the intermediate term. My friend, Mary Ellen McGonagle reminded me that the CPI inflation report will be released Thursday. Inflation seems to be at the top of investors' minds so look for more volatility ahead. Trading in a volatile environment is shaky at best. I am at 15% exposure, but I am considering a small position in Financials, particularly Banks. All investments should be considered "short-term" and require short leashes or babysitting. Things could go south quickly if Thursday's inflation report makes investors nervous.
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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 is forming a bearish rising wedge. Today it closed near its low, forming a bearish shooting star candlestick. Yet, indicators are still very bullish. I would look for a pause not a big decline.
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 rallied again today. The PMO is now readying for a crossover BUY signal. The RSI is positive, rising and not at all overbought. Stochastics have now moved into positive territory above net neutral (50).
GOLD Daily Chart: We see a loose rising trend channel developing. With indicators so positive, I am looking for a test of the top of the channel. Discounts are rising again suggesting investors are somewhat bearish on Gold. Sentiment begin contrarian, this could be positive for Gold, but this condition needs to be monitored.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners continued their rally today, trading above the 50-day EMA the entire day. The RSI has moved into positive territory and is rising. The PMO triggered a crossover BUY signal. The SCI is still below its signal line, but %Stocks > 20/50-EMAs has exploded higher. The SCI should begin rising soon. The GCI remains flat, but with the improvement in %Stocks > 200-EMA, that should also correct itself soon. Stochastics just made it above net neutral (50). Miners look very bullish right now and should test the 200-day EMA soon.
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. I was fretting about a possible island reversal forming and I was right on to worry. The RSI is already out of overbought territory, but with topping PMO and Stochastics alongside a bearish chart pattern, I am looking for a test of the 20-day EMA at a minimum, more likely a test of the October high to cool off overbought conditions further.
When we look at the longer-term USO chart (1-year + 1-month), we do see that the PMO has seen much higher readings, as has the RSI back in February. I still like Oil and Energy, but we could see a pause or decline. The RRG certainly suggests a loss of relative strength.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT dropped as a rising 20-year yield put pressure on it. The PMO is still declining, as is the RSI. Stochastics are still falling, but have reached oversold territory.
Given this level of support didn't hold, the next signpost on the way down would be support at $134.
Technical Analysis is a windsock, not a crystal ball. -- Carl 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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