Generally when some asks, "I have good news and bad news; which do you want first?", I'd guess 90% of the time people say "good news first". With that, I will talk about the IT Trend Model "Silver Cross" BUY signal on Utilities (XLU) and then look at the LT Trend Model "Death Cross" SELL signal on Consumer Discretionary (XLY).
XLU has taken off as more people seek the relative safety of Utilities (we all need electricity and water, right?). Today XLU closed at an all-time high. Based on the participation indicators "under the hood", it isn't done climbing. The Silver Cross Index (SCI) has just had a positive crossover its signal line and sits at about 62%. 70% is considered bullish. Based on the 82%+ of stocks sitting above their 20/50/200-day EMAs, the SCI should continue climbing to reach 70% very soon. The PMO just hit positive territory and the RSI is positive and not quite overbought yet (reading > 70). Stochastics are above 80 and seem ready to oscillate there suggesting short-term internal strength. All four industry groups within this sector have bullish charts.
XLY on the other hand is in a bear market (down 20%+). It shouldn't surprise us that price failed at the 20-EMA yet again. The SCI and Golden Cross Index (GCI) are both reading WELL below 70%. What's worse is that participation of stocks > 20/50/200-day EMAs are even lower that the SCI (12%) and GCI (42%). Price is ready to test last month's intraday low. Given the RSI is negative and not yet oversold, the PMO has topped beneath its signal line and Stochastics reversed in and around negative territory, look for that support level at $160 fail to hold.
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: Winners and Losers are clearly defined on the RRG. XLK, XLY and XLF couldn't get much more negative as they sail in the bearish southwest direction while residing in the worse quadrant of Lagging. XLC doesn't look that bad, but we know that is not an area of the market with much promise right now.
XLB could find itself in Weakening tomorrow. Metals and Mining are mostly holding up this sector with a few pockets of strength in Chemicals. The rest aren't doing well and are keeping the ETF moving lower.
All other sectors look bullish. XLP was moving south, but is trying to hook back around. I will caveat XLI. It is similar to Materials, portions of the industry groups are finding strength like Defense and Shipping, but the majority are relatively weak. Be careful with selections from that sector.
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: The SPX was down almost 3% today as inflation weighs heavy alongside the war. There are more weights keeping the market down, but those two seem to be dominating the headlines.
Price lost support at the January lows. We have the lowest "closing" price since last summer and we were in a bull market back then. The RSI is negative and not oversold. The PMO has topped and moved into a whipsaw SELL signal. The OBV is confirming today's close with a lower close of its own. Stochastics have topped early.
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S&P 500 New 52-Week Highs/Lows: New Lows and New Highs both expanded. This seems in line with the bifurcation of the market between Energy/Utilities/Materials stocks making New Highs in comparison to the other sectors which are making New Lows.
Climax* Analysis: Strong climaxes across the board and the first climax since Thursday's top, so we're calling it a downside initiation climax.
*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 were confirming the rising trend, but today have reversed to confirm the breakdown. %Stocks > 20-day EMA are falling, but not yet oversold. Same holds true for %PMOs Rising.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The ITBM/ITVM have been sitting in oversold territory for weeks. It hasn't resulted in a price reversal. %PMO BUY signals reversed today and ticked down. I would draw your attention to the 2020 bear market. These indicators can move much lower. Back then we saw readings of 0% on %PMOs Rising.
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 firmly bearish. Not only is the GCI reading well below 70%, it is back to declining. With only 39% of stocks above their 200-EMA, the GCI will likely continue to deteriorate.
The intermediate-term bias is also bearish. The SCI is at a low 34% reading and continues to fall.
The short-term bias is bearish too. %Stocks > 20/50-EMAs are lower than the SCI reading.
CONCLUSION: We would like to say there is a snapback ahead, but with a new downside initiation climax and the reversal of the STOs, a relief rally doesn't seem likely at this juncture. The bias is bearish across the board as participation continues to sink. There are bright spots within the market that offer an alternative to inverse ETFs and shorting. I discussed these at the end of today's DecisionPoint Show: Obvious--Energy, Commodities & Gold, Not so Obvious--Fertilizer stocks, Utilities (particularly Conventional Electricity and Multiutilities) and Mining stocks of all sorts. It is probably is best to stay away from most Technology and Discretionary stocks or any aggressive areas of the market like Biotechs. Trying to pick bottoms on those stocks will be risky business.
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Bitcoin failed at overhead resistance and lost support at the 20/50-EMAs. The RSI has moved negative and the PMO triggered a crossover SELL signal today. I'm looking for a pullback to 30,000. At that time we can evaluate if it will be ripe for an upside reversal.
Yields moved higher on the day, putting pressure on Bonds.
10-YEAR T-BOND YIELD
$TNX is holding steady above strong support at the April/May 2021 tops and October/November 2021 tops. This level should hold, but we could be looking at a forming head and shoulders pattern--a messy one. Regardless there is still a bearish topping formation whichever way you slice it.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar continues to move higher as our currency finds international favor. It is overbought based on the RSI, but with a price move like this one, we could see that RSI remain overbought for some time. The PMO certainly suggests we won't see a major decline and Stochastics imply internal strength as they've made it above 80.
Price broke out of a bearish rising wedge. A bullish resolution to a bearish pattern is especially bullish.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold continues to rally. Like UUP we see an overbought RSI. We also have an overbought PMO. However, with Stochastics oscillating above 80 again and the acceleration of the PMO, we do not believe the rally in Gold is over.
GOLD Daily Chart: Discounts are still somewhat high right now telling us that investors are still fairly bearish on Gold. Since sentiment is contrarian, high discounts aren't a bad thing. It's not visible on this daily chart, but we know $2100 is the next level of overhead resistance. If it can get past there, we would be seeing all-time highs for Gold. Our best guess is that it will hit that level and breakout. Inflation and war are clearly influencing investors toward this metal in particular.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners continue to excel. They have rising Gold prices helping them, but metals and mining in general are benefiting from the war. Russia and Ukraine are major harvesters of rare earth materials and metals. Like Crude Oil, this industry is reaping the benefits of global unrest and inflation.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Speaking of Crude Oil, here is the chart of a very bullish USO. It was already in a steady rising trend, but it has since broken above it and is on a new steeper rising trend.
Everything looks overbought on the chart. It will likely stay this way until we see a pause in the rally. It may appear we are late to the party, but most analysts say it is only the beginning. We should see a cooling off period, but investors are happy to sell losing positions and rotate into this area which will keep prices moving higher. Not a bad strategy actually.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Bonds failed to overcome resistance at the 50-day EMA as rates moved higher today. This is also an area of the market that investors have turned to for stabilization and protection. The indicators are positive; I particularly like Stochastics.
Price is staying above support at April/May 2021 tops, so it seems reasonable to expect Bond prices will hold this short-term rising trend.
Technical Analysis is a windsock, not a crystal ball.
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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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