It was only two days ago that XLK triggered a new PMO BUY signal, it is now gone. If you recall, in that article I said that I didn't trust that signal on XLK nor the Nasdaq 100 ($NDX) PMO BUY signal. I am not one to say "I told you so", but I do feel vindicated seeing this heavy decline with a close below the 200-day EMA.
I pointed out numerous weaknesses on the chart. Here is the commentary:
"Looking at the Technology sector on its own, the analysis is the same. The Silver Cross Index (SCI) topped below its signal line and is still in decline. Participation of stocks > 20/50/200-EMAs is seeing some improvement but all are below 50%. I would just warn that we got sucked in twice on the rally in Technology. Is third time a charm? Maybe so, but I need to see more improvement in participation and a solid breakout above the 50-day EMA."
The chart looks worse as would be expected. Participation is falling and is barely there given the percentages of 25% for the SCI and less than 23% have stocks > 20/50-day EMAs. What should worry us is that it is performing in line with the S&P 500. If this sector is this weak, the market will likely continue to struggle too.
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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: Most bullish sectors on the RRG are XLF, XLB, XLP and to some extent XLE. I like that XLI is rising toward Improving, but it is still considered "Lagging". XLRE and XLK are the most bearish given their headings and positions. XLC is showing a bit of improvement, but is still firmly in Lagging. XLV is Weakening with a bearish southwest heading. XLU wants to perform, but it is still Lagging and is moving westward.
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 dropped and closed below the 200-day EMA. I also note a break from the tenuous short-term rising trend again. The indicators are going from bad to worse with the new PMO crossover SELL signal, negative RSI and falling/negative Stochastics.
The VIX has dropped below its moving average on the inverted log scale. It never challenged the upper Bollinger Band which is especially bearish in the short term.
S&P 500 New 52-Week Highs/Lows: New Lows expanded quite a bit with New Highs continuing to trend lower. The 10-DMA of the High-Low Differential looks especially bearish having topped well-below overbought readings.
Climax* Analysis: As we suspected, the upside initiation climax we got on Tuesday did not initiate a new up leg. It resulted in one day of higher prices. Today we got a strong downside initiation climax. This tells us to expect price to fall even lower.
*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 SOMEWHAT OVERSOLD.
STOs told us to take the two positive days this week with a grain of salt given they haven't halted their decline. What's unfortunate is that they are not oversold. Over two-thirds of the SPX have falling momentum and price below their 20-day EMAs. That will not support an upside reversal, particularly when investors are so jittery.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
The ITBM/ITVM resumed their decline. They are not oversold and can accommodate quite a bit more downside.
PARTICIPATION and BIAS Assessment: 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.
Participation is getting slimmer overall with both the GCI and SCI falling as well as %Stocks > 20/50/200-day EMAs. The big problem is that like many of our other indicators, they are not oversold. We have to read the bias as bearish in all three timeframes.
CONCLUSION: Tuesday's upside initiation climax saw one day of follow-through and it wasn't an impressive gain yesterday. Today we have a downside initiation climax which tells us to expect lower prices in the next day or two. Short-term and intermediate-term indicators are all falling and are not oversold enough to look for a reversal. Given the instability globally, the many bubbles that are inflating and economic problems, the market isn't in a position for an upside reversal. I have pared down my exposure to 8% and may drop that to 5%. Be careful out there and think very carefully about opening any new longs.
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Well the bullish set up with a reverse head and shoulders blew up today. Bitcoin crashed after it was announced that President Biden will be signing an executive order that will basically determine how global leaders and financial institutions can regulate cryptocurrencies. Crypto enthusiasts said that one of the best parts of crypto was that it was free from regulation. This could really put Bitcoin into a tailspin. The chart shows a negative RSI that is falling. The PMO has topped just as it was getting comfortable above the zero line. Stochastics turned down before getting above 80. The one positive I do see is that volume wasn't overly high on today's sell-off and the short-term rising trend is somewhat intact. Still, I would look for a possible test of 30,000 if it doesn't right the ship soon.
Yields moved lower again today but remain in strong rising trends or in parabolic advances.
10-YEAR T-BOND YIELD
I didn't think $TNX would test the bottom of the rising trend channel, but that does seems more likely with today's over three basis point drop. The indicators are still looking alright. The RSI is positive and Stochastics are still above 80. The PMO is trying to top and likely will if the bottom of the trend channel is tested. I would look for a likely test of the 20-day EMA at 19.01. We could see a flight to Bonds and that would certainly pressure yields to move lower.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar was almost unchanged today. Price is still below both the 20/50-day EMAs. Stochastics are clearly negative, but the PMO and RSI are neutral and flat. Given the top of the rising wedge was not tested before this price decline, we believe it is headed a breakdown and test of the 200-day EMA.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Breakout! GLD tested the overhead resistance on Monday, pulled back, then broke above resistance on the second try. This is a textbook pullback and breakout. Indicators are strongly bullish. We would look for higher prices, but we do see it is vulnerable to an island reversal. Meaning, price is sitting out on its own--an island. Sometimes you'll see these breakouts end with a gap down, basically leaving price all by itself on an "island". We don't believe that's going to be the case, but it is always good to have all the facts.
(Full Disclosure: I own GLD)
GOLD Daily Chart: On the $Gold one-year chart we do see overhead resistance looming at $1920, but as noted above we are very bullish on Gold and expect it to breakout there as well. We may finally be seeing Gold as a "flight to safety" once again.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners look fantastic and with Gold on the move, the wind is clearly at their back. Today's breakout was excellent. This is one of the few areas I might consider if I were to expand my exposure. Participation is strong, the PMO is rising/not overbought and the RSI is positive and rising (getting a bit overbought, but not a problem in my estimation).
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 paused and remains sitting on the 20-day EMA. This pause has allowed the RSI to move out of overbought territory, but it has damaged the PMO and Stochastics. There is now a new PMO SELL signal and Stochastics just hit negative territory below net neutral (50). I would look for consolidation. That would unwind the PMO and Stochastics. This is still a very bullish area of the market, it has just run too hot for too long. Remember, consolidation can clear overbought conditions.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT was up again. Indicators are negative, but improving now. As noted earlier, we could see a flight to Bonds if the market tanks again and that would continue this rally on TLT. It's not an area I would be moving into. Overhead resistance is close and with the 50-day EMA so far below the 200-day EMA, there is a strong bearish bias. Any upside will likely be limited.
This was an encouraging rally given it came after support was tested at the May lows.
Good Luck and Good Trading!
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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