I remember years ago when I was doing the flagship and now defunct MarketWatchers LIVE show on StockChartsTV, Tom Bowley mentioning that when the Dollar began to rise it hurt global companies (most are large-cap). Their exposure to buying overseas puts them at a disadvantage when the Dollar rises. Basically it costs more to do business outside of the U.S. Using this same line of thinking, it makes me wonder if this war is going to put large-cap stocks, at least those with a global presence, at a disadvantage.
I decided to investigate further using our Silver and Golden Cross Index charts. You'll note on the Silver Cross Index (SCI) chart below that the SPX is seeing continued damage to participation as the SCI trends downward. Now look at IJH and IJR. Both have SCIs in a rising trend that began in early February. Don't get too excited, the readings themselves are very bearish since they are below 40%. In fact, IJH and IJR have SCIs that are lower than the SPX. They may be rising, but the participation itself is still weak given SCI readings are below 40%.
Longer-term, the Golden Cross Index (GCI) for all of these indexes are trending lower. We could be seeing the GCIs for IJH and IJR beginning to bottom as they hold the same readings as they did yesterday, unlike the SPX's GCI.
Conclusion: If I'm right about the pressure on global companies in the SPX, we will likely continue to see participation deteriorate. Small- and mid-cap companies tend to be domestic and less exposed to the war and sanctions. Just remember that the readings for all of these SCIs and GCIs are very bearish. We consider a reading above 70% as bullish so don't get too excited! We are in a bear market and should temper all bullish expectations.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
MAJOR MARKET INDEXES
SECTORS
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: I laughed out loud a little when I saw that XLK after one day of reversing to a bullish northeast heading had completely reversed again and is now look especially bearish given its southwest heading and position within Lagging. XLY is right there with XLK.
XLE is now on its way back to Leading. It's distance from the center point (SPY) suggests it is outperforming the SPY in a big way and now that it has reversed course and is headed for Leading, it is one of the most bullish sectors on the RRG.
XLB is losing steam but is still in the Leading category. XLI, XLV and XLU are also in Leading, but they have a bullish northeast heading. XLP has reversed course and also has a bullish heading within Leading.
XLF is nearing Lagging and looks very bearish. XLC while Improving is beginning to curl back over.
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: For the last four trading sessions SPY has remained in a 2% range. Price is bounded by the 20-day EMA and January lows. Today's big rally was exciting, but there was no real breakout technically.
The RSI is rising, but is still in negative territory below net neutral (50). The PMO is flat, but looks like it could drift into a crossover BUY signal. It's hard to see it, but Stochastics reverse today. Total Volume contracted on the rally which I always find worrisome. We have yet another puncture by the VIX below the lower Bollinger Band on the inverted scale. Typically we will see a rally from these conditions, but the bear market seems to have spoiled that relationship of late.
Recording Link for 2/28 Trading Room:
Topic: DecisionPoint Trading Room
Start Time: Feb 28, 2022 08:54 AM
Meeting Recording Link.
Access Passcode: Feb#28th
S&P 500 New 52-Week Highs/Lows: New Highs contracted on a +1.84% rally! That is troublesome.
Climax* Analysis: Whereas, yesterday we had a downside initiation climax, today we had a new upside initiation climax. We will admit that in times of extreme volatility as we've seen lately, the climaxes happen multiple times in a week. This is unusual, but is symptomatic of manic trading and dizzying sector rotation. You'll also notice that many times upside initiation or downside exhaustion climaxes result in "churn". That is a symptom of a bear market.
*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 NEUTRAL.
I found the shrinking STOs suspect yesterday given the downside initiation climax. Turns out they were right on regarding a possible rally today. They're now in neutral territory, but are on the other side of the zero line. I like the set up given today's upside initiation climax. %PMOs Rising is looking a bit overbought for a bear market.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
A good sign is that the ITBM/ITVM contracted in oversold territory and we are seeing an expansion of BUY signals.
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 long-term bias is bearish given the GCI is below 70% and still falling. %Stocks > 200-day EMA are lower than the GCI which will likely keep the GCI in decline.
The intermediate-term bias is bearish. The SCI is at a very low 38% and continues to fall. %Stocks > 50-day EMA are also lower than the SCI.
The short-term bias is improving given there are a higher percentage of stocks greater than their 20-EMAs than stocks with silver crosses. However, we would read it as more neutral than bullish.
CONCLUSION: It was a great rally today and many of our indicators saw improvement. While we do have an upside initiation climax, there are a few problems that could dampen follow-through: contracting New Highs, contracting Total Volume and still weak participation giving us at best, a "neutral" market bias. Oh! And, of course we are still in a bear market. Manage your positions and exposure carefully.
I did add a small position in HACK as noted yesterday so my exposure is just a tiny bit higher at 10% from 8%.
I was asked about where you can read about "Bear Market Rules". Here is a link to my most recent article on the subject.
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BITCOIN
Yesterday's comments still apply:
"Bitcoin has rallied strongly. Price has now overcome three areas of resistance, the 20-day EMA, the 50-day EMA and $42,000. The next resistance level is at the 200-day EMA and $45,000. It so far hasn't pushed through, but with very bullish indicators, including a new PMO crossover BUY signal today, look for Bitcoin to move higher."
INTEREST RATES
After dropping multiple basis points yesterday, yields rebounded strongly.
10-YEAR T-BOND YIELD
More spectacular than yesterday's 6 point basis drop, $TNX popped up by NINE basis points. Volatility is everywhere. The good news is that support held at the October/November tops. We do have resistance now at the January top and 20-day EMA which could pose a problem given the PMO is still declining despite today's giant leap. Stochastics and the RSI are negative as well.
DOLLAR (UUP)
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 now testing the top of the bearish rising wedge. With the PMO rising on an oversold crossover BUY signal, the RSI positive and not overbought, and Stochastics rising again, we could see a bullish conclusion to this bearish pattern."
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold remains in a solid rising trend, but tripped up today. It hasn't damaged the indicators.
(Full Disclosure: I own GLD)
GOLD Daily Chart: Discounts are contracting overall which suggests investors are getting more bullish on Gold. The RSI is positive, the PMO is still rising and Stochastics reversed in positive territory. We still like Gold moving forward.
GOLD MINERS Golden and Silver Cross Indexes: Despite and over 1% decline in Gold, Gold Miners held their own and only declined about a third of at percent. It is disappointing that the rally in the broad market didn't give GDX a piece of the action, but the chart is still very bullish moving forward. This is one area I could see adding exposure given the strongly rising SCI, major improvement on the GCI and excellent participation as we see more stocks above their 20/50/200-day 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: USO rocketed even higher today. The RSI is overbought, but what's new? The PMO is overbought, but is rising strongly on a crossover BUY signal. Stochastics moved above 80. Volume has been well above the annual average as more investors move into the one sector that is showing consistent gains. We still like Crude Oil, but it is very overbought so we should be prepared for a harsh pullback now that price is in a parabolic rise.
BONDS (TLT)
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Yields soared so TLT dropped hard before even testing the 200-day EMA and $144 price level. Today's crash pulled the RSI into negative territory below net neutral (50) and caused the PMO and Stochastics to top. I don't know that it is over for Bonds right now. The VIX reading is still very high reading above 30, implying that investors are still nervous. Bonds have been the safe haven of choice since mid-February so a rally isn't out of the question.
Good Luck & Good Trading!
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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DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
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