It was one of those trading days that had investors on their toes. The morning saw a huge gap up and higher prices. Then, possibly in anticipation of the release of the FOMC meeting minutes, the market topped early and began meandering lower. Initially stocks fell sharply after the 2p ET announcement of a .25% rate hike and six more coming this year to combat inflation. Half an hour later investors reignited the morning rally, apparently deciding it wasn't a big deal or it was already baked in.
This rally was led primarily by Technology, Consumer Discretionary and Financial stocks. While this could mark the beginning of a bear market rally, we would continue to exercise caution when opening new positions, particularly in the growth side of the market.
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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: Let's start with the bearish sectors. XLC is about to enter Lagging. This is no surprise as this sector has been beaten down and hasn't really resuscitated yet.
XLK, XLY and XLF are in Lagging. Today's big rally changed the heading of XLY and XLK. They are hooking around and could reach Improving shortly. XLF has a bullish northeast heading.
Interestingly, XLP is in Weakening and could hit Lagging soon. This is a defensive sector and given the state of the market, I'm surprised it isn't showing more relative performance.
XLE has hooked back around into the bearish southwest direction. I thought we would have some time before XLE moved into Weakening, but it is moving quickly now. XLRE, XLU, XLV and XLI are well established in Leading, but have taken on a southerly heading.
The most bullish on the RRG would be XLB which is showing improved relative strength as it moves in the bullish northeast direction within Leading.
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 breakout was impressive. It pushed price easily above the 20-day EMA and also broke two of its declining trendlines. The breakout executes a symmetrical triangle pattern in the shorter term. I would like to see it break the longer-term declining trendline. The RSI moved positive today and the PMO generated a crossover BUY signal.
Stochastics rose and have now reached above net neutral (50) implying incoming internal strength. As you can see, that longer-term declining trendline and the 50-day EMA could be a problem, but if not, the bear market rally will be confirmed.
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Topic: DecisionPoint Trading Room
Start Time: Mar 14, 2022 09:01 AM
Meeting Recording Link.
Access Passcode: March@14
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S&P 500 New 52-Week Highs/Lows: Surprisingly we only saw a few extra New Highs today. This is likely indicative of the deep declines many stocks in the SPX have endured, particularly the growth stocks that hit it big today.
Climax* Analysis: Most of the climax readings were not especially strong, but we did get another climax day. Since yesterday was an upside initiation, today's must be labeled an upside exhaustion climax. Looking at other back-to-back upside climaxes, we see the potential for one or two more days of advancing prices.
*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.
STOs rose again today but were somewhat muted given the strong rally. Participation improved greatly. I am now concerned about the now overbought readings on %PMOs Rising.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
IT indicators also rose with the ITBM/ITVM contracting. We now have 54% of the index with PMO crossover BUY signals. It's enough to fuel a small rally, but we've seen two prior failures when this indicator hits this level.
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 improving and that is changing the bias at least in the short term. We now have a higher percentage of stocks above their 20/50-day EMAs than the SCI. We would read this as a short-term bullish bias.
The SCI is rising in oversold territory. It is still reading well below 70%. We like that it is rising, but we will keep the intermediate-term bias as neutral at best.
The GCI is still declining and is also below 70%. The percentage of stocks > 50/200-day EMAs is below the GCI reading so we will leave the long-term bias as bearish.
CONCLUSION: I'd like to call this a new bear market rally, but given the negative bias we've had for so long, I need confirmation. Today's upside exhaustion climax doesn't inspire confidence. However, improved short-term participation is encouraging. Let's see a break above the 50-day EMA and a break from the intermediate-term declining trendline before we get too excited. I am not adding any new positions just yet, but some of you with a bigger risk appetite could consider nibbling a bit. Keep stops in play, particularly if you hop into the growth stocks.
I am 15% exposed to the market.
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There is now a short-term double-bottom visible. The pattern isn't confirmed until we see a breakout at the confirmation drawn along the middle of the "W". If that pattern is confirmed, the minimum upside target would take price to $47,500. The indicators are looking more healthy with the RSI reaching positive territory above 50 and the PMO triggering a crossover BUY signal. The PMO has also reentered positive territory above the zero line. Stochastics are also rising and above 50.
Long-term rates actually pulled back slightly today. The 1/2/3/5/10-year yields continued rising.
10-YEAR T-BOND YIELD
While the 20-year and 30-year yields fell, the 10-year yield popped higher. The indicators look great with the positive and not overbought RSI and PMO as well as Stochastics oscillating above 80 suggesting internal strength. We expect all yields will begin rising further.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: We now have a bit of double-top forming on the Dollar. It won't confirm until price drops below the 20-day EMA. Paired with indicators that are deteriorating, there is a good chance we will see the Dollar take back some gains.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold found support on the 50-day EMA. Unfortunately indicators are still negative with the exception of the RSI which is barely in positive territory above 50. The PMO generated a crossover SELL signal and Stochastics are still pointed lower.
(Full Disclosure: I own GLD)
GOLD Daily Chart: $GOLD did lose longer-term support at the June high, but as noted above, the November high looks fairly sturdy given its alignment with the 50-day EMA.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners rallied a bit likely due to Gold's rise, but also in response to the market rally in general today. Participation is still broad, reading above the bullish 70% threshold. Given the PMO top, we could see price pullback more, but unless participation deteriorates, I still like this group.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:
"Crude Oil continued to pullback. We do not believe that Oil prices are done rising. This pullback could offer us an excellent opportunity to get in. I want to see one of two things. 1) The current rising trend to hold with a bounce off the 50-day EMA and $66 with rising Stochastics OR 2) a drop to $60 with a follow-through rebound and rising Stochastics."
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Given the slight decline in the 20-year yield, TLT was able to rally nearly 1%. The chart is still bearish, but we are seeing a slight improvement in the RSI and Stochastics. We could see a bit more upside but we see yields eventually resuming their move upward and that will put pressure on TLT.
The next support level is at $131 which aligns with the March 2021 low. Price dipped below that level briefly, but did close above.
Good Luck & 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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