It was a day of signal changes as the market tumbled. The SP400 ETF (IJH) saw an IT Trend Model "Dark Cross" Neutral Signal. Technology (XLK) triggered a new PMO SELL Signal. And, finally, the Nasdaq 100 (NDX) generated an IT Trend Model "Dark Cross" SELL Signal. I'm going to focus on the NDX, including an "under the hood" review of participation using the Golden Cross Index (GCI) and Silver Cross Index (SCI).
Before I continue I want to reiterate that any "Silver Cross" (20-day EMA crosses above 50-day EMA) is an IT Trend Model "Silver Cross" BUY signal. When we have a "Dark Cross" (20-day EMA crosses below 50-day EMA) it is either a Neutral or a SELL. If the "Dark Cross" occurs ABOVE the 200-day EMA, it is Neutral Signal. If the "Dark Cross" occurs BELOW the 200-day EMA, it is a SELL Signal.
The NDX "Dark Cross occurred below the 200-day EMA and is therefore an IT Trend Model "Dark Cross" SELL Signal. Price lost support at the April 2021 highs today. The RSI has tumbled into negative territory below net neutral (50). Stochastics are nose diving. The PMO should have an official crossover SELL signal tomorrow.
With price support being lost, we need to look "under the hood" at participation indicators. Both the GCI and SCI have topped. They are topping at an anemic 45% level. We consider 70% and above as bullish. %Stocks with price above their 20/50/200-day EMAs are below the SCI/GCI percentages which gives us a strong bearish bias in all three timeframes. It makes sense that XLK had a "Dark Cross" today given the tech-heavy NDX had one. Aggressive sectors and industry groups are out of favor. Tread carefully.
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MAJOR MARKET INDEXES
Each S&P 500 Index component stock is assigned to 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 bullish sectors are obvious right now. Consumer Staples (XLP), Healthcare (XLV), Real Estate (XLRE) and Utilities (XLU) all have bullish northeast headings and reside in the Leading quadrant.
Materials (XLB) is still bullish as it is in the Leading quadrant, but it has reversed into a bearish southwest heading. Communications Services (XLC) is mostly neutral. It is in the Improving quadrant but with its eastward heading it should hit Leading tomorrow. Be careful in this sector and gravitate toward the strongest relative performers among the industry groups in XLC.
Energy (XLE), Financials (XLF) and Industrials (XLI) are moving north to northeast toward the Improving quadrant. Remember, that all are lagging relative to the SPY, so we need to be picky about our selections in those sectors.
Aggressive sectors Technology (XLK) and Consumer Discretionary (XLY) are fading fast with bearish southwest headings. They are already in the Weakening quadrant but could hit the Lagging quadrant soon.
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 annotate a bullish falling wedge in the short term. Price has hit support and could see a small rebound out of the wedge. However, indicators are flashing more decline. The RSI has hit negative territory and the PMO is about to trigger a crossover SELL signal. Total Volume was at its annual average. I wouldn't say volume was muted, but it wasn't frantic either.
The VIX has dipped below its moving average on our inverted scale. That suggest internal weakness in the very short term. Stochastics are falling and haven't reached oversold levels below 20 yet.
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Start Time: Apr 11, 2022 09:00 AM
Meeting Recording Link.
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S&P 500 New 52-Week Highs/Lows: Not surprisingly we saw a contraction in New Highs and an expansion in New Lows.
Climax* Analysis: No climaxes today.
*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.
In comparison to the March low, STOs look oversold. Only one-third of the SPX have rising momentum. Note that neither of the participation indicators are oversold. All of these indicators can accommodate more downside before getting oversold.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERBOUGHT.
The ITBM and ITVM have continued to trend lower but are still in overbought territory. The index components continue to lose PMO BUY signals. None of these indicators are oversold.
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.
Both the GCI and SCI have topped well below our 70% bullish threshold. Participation of stocks greater than their 20/50/200-day EMAs is lower than both the GCI and SCI. This gives us a bearish bias in all three timeframes.
CONCLUSION: The SPY could be setting up for a very short-term bounce out of the bullish falling wedge. However, all indicators are all in decline and not oversold. There is a bearish bias in all timeframes so any bounce or rally may not have staying power until indicators start getting oversold. We would consider any rally to be a bull trap. Don't get ensnared.
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The bullish cup and handle chart pattern is now suspect given the "handle" has extended down nearly halfway into the January-March trading range. Indicators are all negative suggesting the decline is likely to continue.
Interest rates continue to climb along steep rising trendlines. Inversions abound.
The Yield Curve Chart from StockCharts.com shows us the inversions taking place. The red line should move higher from left to right. Inversions are occurring where it moves downward.
Numerous inversions are noted on the yield curve. These inversions will many times come before a period of economic decline.
10-YEAR T-BOND YIELD
$TNX has a steep rising trend channel. These are difficult to maintain, but indicators are still strong. We expect rates to continue to rise. We could see a softening of the rising trend on a pullback, but it doesn't look ready.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar is in a rising trend channel. Last week it broke out above overhead resistance at $26.60. I would look for the rally to continue. The RSI is positive and not overbought, the PMO is rising and Stochastics are oscillating above 80.
On the one-year chart we can see there is a longer-term rising trend channel. Price is tapping the top which could mean a trip lower. We would expect to see it continue to hug the top of the channel or possible stop to consolidate.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: The rising Dollar has hampered Gold, but hasn't crippled it. GLD is reaching overhead resistance and has formed a bearish black-filled candlestick. I expect a breakout here, but with this bearish candlestick, it may take a bit longer.
GOLD Daily Chart: Indicators are positive with the RSI above net neutral (50), Stochastics rising and the PMO decelerating. Discounts are still relatively low meaning investors are only slightly bearish.
GOLD MINERS Golden and Silver Cross Indexes: GDX broke above its symmetrical triangle, but closed beneath. It is a continuation pattern so we expect the breakout to stick eventually. The RSI is positive and Stochastics are nearly above 80. Participation continues to be strong. Both the SCI and GCI are above the 70% bullish threshold. %Stocks > 20/50/200-day EMAs are below the SCI which normally implies a neutral or bearish bias. However, percentages are all above the bullish 70% level. Gold Miners still look bullish.
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 has essentially drifted sideways out of a symmetrical triangle. Technically it broke down from the rising trend, but it is holding comfortably above the 50-day EMA and February top. Even with a breakdown, there is more support available.
The longer-term rising trend has been busted to the downside, but again support is holding. The RSI is negative and the PMO is falling out of overbought territory. Stochastics are indecisive. We believe support will likely hold and a rally will ensue.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT had formed a bullish falling wedge, but price broke below it instead of the expected upside breakout. A bearish conclusion to a bullish chart pattern is especially bearish. It isn't surprising given TLT has been in a bear market for some time.
All indicators are oversold, but also are pointed downward suggesting no relief ahead for Bonds.
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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