The market made a remarkable recovery after being down well over 1.5% to start the day. However, that did not improve the technicals on the charts. We don't even have an actual price "bottom" as lower intraday lows were set alongside lower intraday highs today. With the waterfall decline that began last Thursday, we've seen quite a few SELL signals emerge on the major indexes. Today the SP400 was another casualty.
A "Death Cross" dramatically means a 50-day EMA cross below the 200-day EMA. When this happens, it means that the stock, index, ETF, etc. is now in a bear market configuration. We need to temper our bullish expectations. Support for MDY lies all the way down at $460. We would look for that given the very negative PMO top beneath its signal line. The OBV also tells us with its strong declining trend since the end of March that volume has been flying out of this ETF.
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
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: On the short-term "daily" RRG we can see some leadership in a few sectors; however we would caution you before you enter. Remember this a "relative" rotation graph, meaning we are looking at "relative strength" to the SPY. Currently, NONE of the sectors have rising momentum.
Industrials (XLI) and Financials (XLF) have mostly bullish northeast headings and are headed toward the Leading quadrant which indicates relative strength.
The most bullish move on the RRG is by Consumer Discretionary (XLY) which has hooked around and has now entered the Leading quadrant. Technology (XLK) is looking better as it heads northward toward the Improving quadrant, but it is still firmly planted in the Lagging quadrant.
Communication Services (XLC) is the most bearish of the bunch. It has a bearish southwest heading and is already in the Lagging quadrant.
The remaining sectors are in the Leading quadrant. None have a bullish northeast heading, all of them are showing weakness. Real Estate (XLRE) is the most promising based on the RRG as it is clearly headed further into the Leading quadrant despite a slightly southward heading.
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: As noted in the opening, while we had a positive close, we do not have a bottom. Much lower lows were set and much lower highs were also set. Even with the rebound, price was unable to get back within the channel. Indicators didn't see much improvement. The RSI is still negative and the PMO is falling below the zero line.
This is the second penetration of the lower Bollinger Band by the VIX on our inverted scale. Typically these punctures result in at least a day or two of upside or sideways chop. Stochastics are very negative, so if we do see a bounce off very bearish sentiment, I wouldn't expect it to amount to much.
Here is the latest recording:
Topic: DecisionPoint Trading Room
Start Time: Apr 25, 2022 09:00 AM
Meeting Recording Link.
Access Passcode: April@25
S&P 500 New 52-Week Highs/Lows: Remember that New Highs and New Lows are logged during the day. If a stock fails to hold its new low or new high, it is still going to be counted on the chart below. New Lows are oversold, but you'll note that condition doesn't always result in upside. With bear market downside pressure, we expect this reading isn't that oversold. The 10-DMA of the High-Low Differential is falling quickly. That is generally not good for the market.
Climax* Analysis: There were no climaxes today because we got a lot of selling initially, then the market reversed to the upside. So while SPX Total Volume was above the average, up and down volume was about even.
*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.
We show that the condition of ST indicators is "neutral". The STOs are certainly neutral as they hover around the zero line. They are continuing to deteriorate despite a positive close. %Stocks > 20-day EMA and %PMOs Rising are oversold. However, we have certainly seen even lower readings on these indicators so we wouldn't count on these oversold conditions to result in higher prices yet. The STOs need to reach oversold territory and/or reverse direction before we start looking for a reversal.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
The IT indicators are very bearish and they aren't at all oversold yet. In fact, the ITBM/ITVM are still in positive territory! %PMO Crossover BUY signals continue to drop quickly lower, but that indicator is not at all 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.
I explained during today's DecisionPoint Show that when we look at participation "under the hood", we not only consider the readings of these indicators, but also their "trend".
When the %Stocks above their 20-day EMA is lower than the 50-day EMA that tells you that the short-term bias is deteriorating and is spreading to the intermediate term. When %Stocks above their 50-day EMA is lower than the %Stocks above their 200-day EMA, the deterioration is spreading into the long term. Basically, you don't want to see the percentages getting bigger top to bottom. It implies breakdowns are continuing within the index.
That said, you'll note that the bias in bearish in all timeframes as %Stocks indicators are all lower than the SCI and GCI, meaning the SCI and GCI will likely continue to decline.
CONCLUSION: Today's reversal was impressive given the market turned around a deep decline. However, we still don't have a price bottom and indicators are still very bearish. If we're lucky, we will see some sideways chop which is always a fun environment to trade in...not. We see the decline continuing given the negative indicators across the board. Ultimately, you have to decide how much more downside you're willing to endure while waiting for reversals. In the trading room, most stocks if held would require a 5%+ decline before we can even hope for a reversal. On top of that, trading reversals in a bear market is usually a losing proposition. We want to stack the odds in our favor. Continuations will have a higher success rate, but will still be difficult to find as the broad markets are sliding.
I am 20% exposed to the market with very tight stops. I'm choosing to stay out, but this week's "Diamonds in the Rough" will likely spotlight shorting opportunities rather than longs. It's just that type of trading environment.
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We've been watching a bullish cup with handle chart pattern. It's now getting "long in the tooth" (too old) and we have a failed breakout from last week. The indicators are more neutral than bullish or bearish. The PMO is flat, RSI is negative and Stochastics are oscillating in negative territory below net neutral (50).
We note that the 20-year and 30-year yields have started trending downward.
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.
10-YEAR T-BOND YIELD
$TNX is now testing the bottom of the original rising trend channel, but also is testing the bottom of the bearish rising wedge. The expectation is a breakdown. Rates have gotten extended and this rising bottoms trendline is very steep. Given the PMO has topped in overbought territory, a pullback to the 20-day EMA seems inevitable. Worst case would be at 25.
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 rally. This has brought the RSI into overbought territory, but on the flip side the PMO is accelerating higher and Stochastics are oscillating strongly above the 80 level. My concern is that when price hits the top of a rising trend channel, it is usually due for a pullback.
However, the one-year chart demonstrates that is not always the case. UUP broke above the intermediate-term rising trend channel and has steepened the rising trend. Positive situation, just need to keep an eye on these overbought conditions.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold has really felt the heat with the Dollar on the rise. Price is now testing the top of a support zone between $172.50 and $177 on GLD. If that fails, it still has the 200-day EMA and $172 which aligns with the January highs.
GOLD Daily Chart: Indicators are very negative with the PMO accelerating downward. Stochastics are falling sharply and the RSI has quickly entered negative territory below net neutral (50). Discounts are paring back suggesting participants are less bearish on Gold, but that has yet to affect price. Indeed, we see a breakdown below support at the June 2021 highs.
GOLD MINERS Golden and Silver Cross Indexes: With Gold in free fall, GDX had to contend with a broad market crash as well as a crash in the price of Gold. It's hit this industry group hard. I warned on Thursday that getting out of your miners would be a good idea. Currently 0% (NONE) of the group members have price above their 20-day EMA. Nearly half of the gains from the rally out of the late January low have been erased. Only 10% have price above their 50-day EMAs. Indicators are very bearish. It's not the time to seek a reversal even though the 200-day EMA is nearing as support.
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 moving in a trading zone between $70 and $82. It's reaching the bottom of the zone, but USO's indicators are deteriorating quickly. The RSI moved negative today, the PMO has topped beneath its signal line and Stochastics also hit negative territory.
While the rising trend was compromised, price did manage to close above it. As noted above, with indicators this negative, we should wait before trying to catch this one on a reversal. We do believe it will reverse, but not until indicators unwind more.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT has formed a short-term bottom, but hasn't reentered what had been a bullish falling wedge. We saw a bearish conclusion to a bullish falling wedge pattern which was particularly bearish. We expect to see rates turn higher and bonds turn lower, but for now, it appears we could see some consolidation on both bonds and yields.
Indicators are neutral to bearish. The RSI is rising, but it is still in negative territory. The PMO and Stochastics are flat and unhelpful.
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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DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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