The market was jugging along nicely as rotation began to move toward Technology and growth stocks in general. It came to an abrupt halt today, likely triggered by the giant declines on two major players, PayPal (PYPL) and Meta Platforms (FB). Both reported poor earnings and lowered guidance that spooked investors and had them leaving in droves. I've put the weekly charts of both below. In actuality, they are near or at important support levels that could mean an upside reversal on bargain hunting.
In the grand scheme, PYPL and FB are probably giving us a peek into what could end up happening to the market as a whole when the various "bubbles" out there begin popping. Rising mortgage rates are going to put the housing market in a tailspin. Inflation is already applying pressure and any steps the FOMC take to curb that will only exacerbate the market's weakness and fragility. Crypto has already lost its shine. Global unrest will likely come to roost after the Olympics finish in Beijing. I am sure I've missed other 'bubbles' out there (ETF indexing is a whole other issue). Let's review PYPL and FB.
Rebranding Facebook to Meta didn't make investors forget the problems with "Facebook". FB closed below strong support at the late 2020 low and early 2021 low. More support is available at $220. The weekly RSI is very oversold (no surprise given the 21% decline so far this week). The weekly PMO is pointed straight down and just entered negative territory. I wouldn't be bottom fishing here given it hasn't really hit the strongest support level.
PYPL is a different story as far as support. It is already sitting on the 2019/early 2020 highs. The weekly RSI is very oversold, but still falling. The weekly PMO is moving vertically downward and is highly oversold right now. Again, I wouldn't be a bottom fisher here mainly because those weekly indicators are still moving lower and the damage may not be done yet.
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: The most bullish sectors based on the RRG would be XLK, XLV, XLRE and XLF. XLK and XLRE are heading in the bullish northeast direction out of Improving. XLV has the same direction but is within Leading. XLF is on the list of the most bullish sectors due to it hooking back around in Weakening toward Leading. Julius de Kempenaer says that is usually one of the more bullish signs on an RRG. XLC, XLB and XLY are Lagging and getting weaker as they travel in the bearish southwest direction. XLE and XLI are in Weakening with XLU and XLP on their way to join them.
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: Before I show you the daily chart, I want to show you today's 5-minute candlestick chart and after hours trading. Yesterday we finished on a high note, but after hours price fell heavily and that continued into today. Today, after hours trading is far more favorable with the SPY up after hours more 1%. I'm not sure I would count on the rally resuming necessarily, but we could see an opportunity to sell into strength (which I am looking for).
We have been using rising boundaries on the reverse flag, but on second thought, we think that flat boundaries, which encompass the only the body of the candlesticks, present a more accurate context for recent price action. It was especially bullish to see a breakout from a bearish formation, but once serious overhead resistance was reached at the 50-day EMA, price stalled. Had we seen a decline that was smaller, that held support at the November lows, I would be looking for another crack at the 50-day EMA. However, with a giant 2.35% decline, the handwriting is on the wall. This was likely a bear market rally and lower prices are ahead.
The RSI has turned negative quickly on the decline and the PMO is now topping beneath the signal line which is especially bearish. Stochastics are also trying to top before reaching above 80.
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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 turning lower which is bearish in the intermediate and long terms.
S&P 500 New 52-Week Highs/Lows: Apparently we got all the rally we're going to out of the positive divergence between New Lows and price lows. The 10-DMA of the High-Low Differential is bottoming in oversold territory which is bullish.
We never saw a positive divergence between New Lows and price lows on the NYSE which did suggest this wasn't going to be lasting.
Climax* Analysis: There were unanimous climax readings today, associated with a price reversal, giving us a downside initiation climax. We should expect more downside follow through. Notice also that the VIX has moved below its moving average on the inverted scale. This is also a confirmation of today's downside initiation.
*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 OVERBOUGHT.
STOs are still rising which is encouraging, but they are already getting overbought and with today's deep decline, we expect them to turn down soon. Participation dropped and all of the new momentum we recently gained is quickly paring back before reaching overbought territory.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERSOLD.
IT indicators are still oversold and rising and we are seeing more PMO crossover BUY signals. Knowing that rising momentum is deteriorating again based on the above chart, we don't expect %PMO BUY signals to continue much higher.
Bias Assessment: We were finally beginning to see a bullish bias in the short and intermediate terms. That has changed quickly with participation of stocks > 20/50-day EMAs are now below the SCI reading. The GCI turning down below its signal line and seeing far fewer stocks > 200-day EMA tells me that the long-term bias is moving bearish.
CONCLUSION: The market was finally showing internal strength and interest was growing in the Technology sector. PYPL and FB were catalysts that brought investors back to the reality that a bear market has not been avoided. Had we seen a textbook throwback to support at the 20-day EMA, I wouldn't be so bearish. Instead we saw a sell-off and it is accompanied by a downside initiation climax. I think the rally is cooked and we can start looking for more downside. More than likely we are going to see some love for defensive areas like Consumer Staples and Utilities as well as high yield stocks. Rising rates should benefit Financials. Tread carefully and prepare for more downside.
Momentum investors like me are frustrated right now. If we do see some buying tomorrow, I will likely close my tech position and count my blessings. If we do not, which is more likely, I will take the loss and move on. Thankfully my new positions were very small.
I'm currently 20% exposed to the market with 80% in cash and readily available to trade.
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Yesterday's comments still apply:
"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
The 10-year yield soared three basis points today with $TNX now testing overhead resistance. Stochastics and the RSI tell us to expect a breakout. The PMO is still on a SELL signal, but it is flattening and will likely be back above its signal line soon.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar is now resting on the short-term rising bottoms trendline. Indicators look very bearish including a new PMO crossover SELL signal. I would look for a 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: GLD was down slightly. It closed below the 200-day EMA, but it didn't close near its lows. Indicators are mostly neutral, but Stochastics are technically rising. Notice that discounts are rising again. That tells us that investors are getting more bearish on Gold.
Full Disclosure: I own GLD.
GOLD Daily Chart: Gold should hold support at $1780...worst case $1750. With indicators so neutral, I don't expect a giant rally, probably more consolidation between $1780 and $1880.
GOLD MINERS Golden and Silver Cross Indexes: Miners had the headwind of Gold falling and the market tanking. The RSI turned down in negative territory. Like Gold, the PMO is flat. Stochastics are beginning to top unlike Gold. Participation is falling once again. I don't expect a breakout here. GDX is likely to test this year's lows.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Given today's bullish engulfing candlestick, it appears Crude Oil is ready to continue onward in its rising trend channel. I had thought we might see a test of support at the October high or even the 20-day EMA before price resumed the rising trend. Given the RSI and PMO are overbought, that is still a possibility. However, internal strength remains with Stochastics easily staying above 80. The OBV is also rising consistently with price.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: With the 20-year yield rallying today, TLT fell. It is about to test support at $140. The PMO may be on a crossover BUY signal, but the margin is very thin between it and its signal line. RSI is negative and falling and Stochastics are also negative and falling. I expect yields to breakout and that will mean a breakdown ahead for TLT.
There is support further down at the April/May 2021 highs, but again, I don't believe rates will be falling so look for a breakdown and possible test of $134 (best case) or $132 (most likely).
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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