It was an interesting week with prices falling fast to begin the week and rebounding early yesterday to finish with a positive close on the week. Right now we have a bullish flag formation on the SPY 5-minute candlestick chart. We saw strong positive volume to finish the day.
Erin often talks of "buy points" in the trading rooms. On a 5-min candlestick chart a "buy point" is when the PMO has a positive crossover while the RSI is positive. We hit a buy point in the last five minutes on the SPY. Additionally, the flag suggests an upside breakout going into next week.
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
For the Week:
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.
For the Week:
Short-term (Daily) RRG: Most bullish sectors in the short term are XLV and XLP. Both just entered Leading and have bullish northeast headings. Most bearish are XLK, XLY and XLF which all have bearish southwest headings.
Middle ground we have XLC, XLRE, XLI, XLU making gains with northeast headings. All four are in the Improving quadrant.
That leaves us with XLB and XLE. I like both of them still, but XLB is starting fade a bit now that it is traveling southward. XLE is heading back toward Leading even with a northwest heading.
Intermediate-Term (Weekly) RRG: XLE is the clear winner and outperformer in the intermediate term. No surprise there. XLF looks very bullish on the weekly RRG, but it is looking very bearish on the daily RRG, so take that one with a grain of salt.
XLI and XLC are in Improving and do have bullish northeast headings. I simply don't trust XLC yet. XLI looks good on both the weekly and daily RRGs.
Defensive sectors XLP and XLU are in Leading, but are beginning to lose ground in the intermediate term. XLV and XLB are also in Leading, but neither have a bullish northeast heading.
XLK, XLRE and XLY are the weakest on the RRG with all traveling in a bearish southwest direction or as in the case of XLY sitting deep in Lagging.
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: We've annotated two declining trendlines. Price managed to breakout from the steep declining trendline, but hasn't actually broken the longer-term declining trendline. Price managed to close above the 200-day EMA today by $0.10. Still, it is a positive.
The RSI isn't positive yet, but it should reach above net neutral (50) soon given it is rising. The PMO has turned back up and Stochastics are rising nicely again. We now have a bullish double-bottom pattern in the works, but remember in a bear market environment we should not look for these patterns to resolve with an extended rally past the confirmation line at the February high.
SPY Weekly Chart: This chart provides a study of wedges. First there is the bearish rising wedge, lasting more than a year, which broke down in January, as expected. This week's price action has set up a falling wedge, which should normally resolve to the up side. If there is a breakout, we should view it as a bear market rally.
SPY Monthly Chart: Price has broken down from the parabolic curve, and the monthly PMO has topped. There is one trading day left in the month, but it is not likely to change the bearish long-term outlook.
New 52-Week Highs/Lows: Despite yesterday's late day advance, we had a large expansion in New Lows. That was due to the tallies taken during the day when the market tanked in the morning yesterday. Today we had a nice expansion in New Highs. The 10-DMA of the High-Low Differential is finally bottoming as well.
Climax Analysis: We had very strong climactic readings across the board today, giving us an upside initiation climax. The SPX UP/DOWN Volume Ratio was especially robust. SPX Total Volume contracted, but was high enough to confirm the other readings.
*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 OVERSOLD.
STOs reversed and participation expanded quickly out of oversold territory. This reversal out of oversold territory goes hand in hand with today's upside initiation climax. We now have about 3/4ths of the SPX with rising PMOs.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
IT indicators also reversed direction today supporting the upside climax and rising short-term indicators.
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.
The following table summarizes participation for the major market indexes and sectors. We have added 1-Week Change columns for each Index so that there is a dynamic aspect to the presentation.
Both the SCI and GCI are below 70% so they aren't bullish. The GCI is still falling and there is a lower percentage of %Stocks > 200-EMA. That gives us a long-term bearish bias. The SCI held up its decline, finishing with the same reading as yesterday. I would read that as neutral for the intermediate term. Short-term the bias is now bullish with %Stocks > 20/50-EMAs at a higher percentages than the SCI.
CONCLUSION: Signs are pointing to a bear market rally next week. Indicators are beginning to rise out of oversold territory setting the stage for higher prices. Today's upside initiation climax also supports this line of thinking. Remember bear market rules! They tell us that oversold conditions in a bear market provide a weak foundation for a lengthy rally. However, there will likely be trading opportunities next week. Consider any position you open as very short-term. If you decide to get in, have your fingers on the trigger so you can eject and parachute out if needed.
Erin is 8% exposed to the market, but considering some quick trades next week.
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It appears Bitcoin is ready to rally again. The RSI is rising and the PMO is reversing. Stochastics are also rising. However, Bitcoin is in a bear market. Remember the bullish reverse head and shoulders that busted on this decline? We should expect bullish conclusions to chart patterns in a bear market. However, if we want to speculate, yesterday's low could be setting up another bullish pattern, a double-bottom. Don't forget bear market rules, we could see failure at overhead resistance along the 50-day EMA or early February tops.
Yields were all over the place this week, but remain in a rising trend.
10-YEAR T-BOND YIELD
$TNX broke the rising trend channel on an intraday low, but finished well within. Indicators are mixed, but we expect the yield to rise next week if the market rallies. More than likely money will leave Bonds in order to take advantage of a rally in equities.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar hit the top of the bearish rising wedge and turned back down on a filled black candlestick. Indicators have softened with Stochastics turning down below 80. Additionally while the RSI is positive it is also declining. The PMO is beginning to decelerate. Time for price to test the bottom of the bearish rising wedge.
UUP Weekly Chart: The weekly chart shows that price is hitting strong overhead resistance at late 2019 lows and is struggling. The weekly PMO looks negative, but so far it has managed to avoid a negative crossover.
UUP Monthly Chart: The monthly chart demonstrates that there is very strong overhead resistance at this price level; another reason we will likely see a pullback. If price does decline as we expect, we would look for a possible rebound off the long-term rising trendline. The monthly RSI and PMO are both bullish.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GOLD Daily Chart: Gold is acting up as it usually does when it is topping. Gold seems ready for a pause. The RSI is positive, but falling. The PMO is decelerating in overbought territory and Stochastics are falling out of overbought territory.
Our thought is that we will see some sideways movement above the November high, but with the PMO turning down on $GOLD, there is a somewhat bearish bias.
GOLD Weekly Chart: The weekly chart is very encouraging. The RSI is positive and the weekly PMO is increasing the margin between it and its signal line as it rises. Note the spike in discounts. That suggests investors are still very bearish on Gold. Many times we will see upside price reversals when sentiment is very bearish.
GOLD Monthly Chart: The monthly chart explains quickly why price is struggling at this level. It is attempting to overcome resistance at the 2011 high. The monthly PMO is flat but the RSI is still oscillating in positive territory above net neutral (50). Right now Gold is not correlated to Dollar. This tells us that they don't necessarily have to travel in opposite directions.
GOLD MINERS Golden and Silver Cross Indexes: With Gold acting wishy washy, Gold Miners weren't able to hold above resistance at the November high. However, support is holding at the January top and key moving averages. The RSI is positive and the PMO is still rising.
The SCI is topping which is negative, but note how much higher %Stocks > 20/50-EMAs are compared to the SCI percentage. We still have a short-term bullish bias. While the SCI may be topping, it is above 70% so the intermediate-term bias is still somewhat bullish.Intermediate term, the bias is bullish given the GCI is far lower than the %Stocks > 200-EMAs.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Price is now testing the bottom of the rising trend channel and 20-day EMA. There is the possibility of a breakdown here given falling RSI, PMO topping beneath the signal line and Stochastics turning down before getting above 80. There is weakness here. Geopolitical conditions could change this somewhat bearish chart soon as sanctions on Russia will likely impact Crude Oil prices in a positive way.
USO/$WTIC Weekly Chart: Intra-week we saw a closure of the gap from the 2020 bear market. Typically a closed gap means a continuation in that direction which would mean higher prices. The weekly RSI is very overbought and the weekly PMO is trying to top.
WTIC Monthly Chart: Monthly chart looks great. The monthly RSI is in positive territory and isn't overbought. The monthly PMO while overbought, is still rising very strongly. We don't hit overhead resistance until $110/barrel.
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: Yesterday TLT was up in a big way, but as the market began to rally, it took back nearly all of its gains. Bonds are a defensive area of the market and we expect a bear market rally. Investors aren't like to buy in here. Technically we see a negative RSI and flat PMO and Stochastics. On the bright side, the PMO triggered a crossover BUY signal today.
TLT Weekly Chart: The monthly chart shows a breakdown of the long-term rising trend, a very negative weekly RSI and PMO. We would look for a test at $130.
TLT Monthly Chart: The monthly chart is very negative. There is a large bearish double-top and price is nearing the confirmation line at $130. The monthly RSI is negative and the monthly PMO is accelerating downward.
Good Luck & Good Trading,
Carl & Erin Swenlin
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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