XLE broke out intraday but finished right on resistance at the close. We expect price to push through and close above given the brand new PMO crossover BUY signal that was triggered today. This was Erin's "Sector to Watch" in the DP Diamonds Recap on Friday based on the strong participation beneath the surface. 100% of Energy stocks have a 50-day EMA above the 200-day EMA which is implies a long-term bullish bias. Nearly every Energy stock has price above all three key moving averages (20/50/200-day EMAs). Since the end of April, XLE has been moving mostly sideways and now it is breaking out again.
XLE isn't the only Energy related ETF to see a PMO BUY signal today, USO also had a positive PMO crossover. We'll look at that chart in the section on Crude Oil.
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 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® Weekly Chart ($ONE Benchmark): $ONE is the current benchmark on the RRGs:
After last Friday's rally, we note that the Lagging sectors are beginning to hook around and move toward the Improving quadrant. Just remember they are still very far from strength, particularly in a bear market.
The most bullish is XLP which shot up into the Leading category and has a bullish northeast heading.
XLB is stagnating near the center of the RRG, showing little strength with Leading. XLV is headed south toward Weakening.
XLRE was inside the Leading quadrant only a short time ago. It isn't clear, but XLRE skipped the Weakening quadrant to move straight into Lagging. XLI looks similar only its home has been the Lagging quadrant. It now has a bearish southwest heading.
XLU is in Leading, but we can see it is quickly traveling toward Weakening. XLE has a bearish southwest heading within the Weakening quadrant. We aren't too concerned given the bullish participation and indicators on the sector chart.
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: SELL as of 5/5/2022
SPY Daily Chart: Price is now traveling within a declining trend channel. The expectation is a test of the 20-day EMA which aligns with the top of this trend channel. Meanwhile, there is a strong resistance zone between price and the 20-day EMA.
The RSI is negative and the PMO is flat. Stochastics are encouraging, but we've two prior false signals in April and May. The VIX is back above its moving average on our inverted scale which tells us some of the bearish sentiment is fading.
Here is the latest recording:
Topic: DecisionPoint Trading Room
Start Time: May 16, 2022 09:00 AM
Meeting Recording Link.
Access Passcode: MondayMay#16
S&P 500 New 52-Week Highs/Lows: Huge contraction of New Lows, but not that many New Highs. There is a bullish signal as the 10-DMA of the High-Low Differential has turned back up. You'll note that many market bottoms occur when this indicator bottoms are is rising. The current reading is very oversold.
Climax* Analysis: There were no climax readings today. The contraction in SPX Total Volume is significant, as it shows a lack of interest in the rally that started last week.
*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 are at their core exhaustion events; however, at price pivots they can be seen to be initiating a change of trend.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL.
STOs are rising which implies higher prices. 42% of the SPX have rising momentum which could reasonably lead to higher prices; however, we've seen in the past that bullish signals aren't producing much in this bear market.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
It's a bit of an eye test, but both the ITBM/ITVM are contracting out of negative territory. There are only 19% of stocks with PMO crossover BUY signals in place. The 19% reading is oversold, but we don't have a crossover above the signal line. Do keep in mind the current "oversold" readings aren't nearly as oversold as they were at the end of the 2020 bear market.
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.
%Stocks > 20-day EMA is now slightly higher than the %Stocks > 50-day EMA. That implies improvement. While we are seeing higher participation readings on %Stocks indicators, the SCI and GCI continue to decline. We would still read the market as having a bearish bias in all three timeframes.
CONCLUSION: Total Volume was anemic today, waning in the wake of the strong rally last week, suggesting enthusiasm for last week's rally is already wavering. However, the big takeaway from today's indicators is the rise in short-term bullish sentiment based on VIX readings moving lower. We've seen articles, tweets, etc that sentiment is now bearish enough to consider a reversal. We beg to differ. Erin published an article last week that sentiment wasn't at bearish extremes. While the National Association of Active Investment Managers (NAAIM) saw a contraction in exposure to 24% last week, the American Association of Individual Investors (AAII) only shows 49% of respondents bearish. That's no where near capitulation.
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Bitcoin is holding support, but it isn't looking good. The RSI has tipped over in negative territory and the PMO has yet to turn back up. Stochastics were bullish, but they are already topping. If this support level is lost, confidence in cryptocurrencies could evaporate. A "run on this virtual bank" could be devastating.
Longer-term rates are pulling back, but the short-term rates continue to rise.
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 broke down from the bearish rising wedge and bounced off support at 2.8, but headed back down today. It is a very strong support zone between 2.6 and 2.8. It looks like it will test that given the PMO and Stochastics continue to fall, but given the RSI remains positive, that support should hold.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar is pulling back slightly. Price has formed a very short-term bearish rising wedge and the PMO has topped in overbought territory. The chart is still favorable based on the positive RSI and Stochastics oscillating above 80 so we don't expect a deep decline. Look for a test of the May low.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: With the Dollar's rally stalling, Gold had a chance to rally. The PMO has flattened, but the RSI and Stochastics are still very weak.
GOLD Daily Chart: Support lies at $1775, but the strongest level is $1750. Sentiment based on high discounts on PHYS is very bearish which bodes well. Seeing support nearing and the Dollar and Bitcoin weakening; we would keep Gold on your watch list.
GOLD MINERS Golden and Silver Cross Indexes: GDX rallied again today, but we aren't optimistic it will continue to move higher. We need to see more than 0% of stocks above their 20/50-day EMAs. At this point we don't see any improvement internally.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: The bullish ascending triangle pattern on USO is beginning to resolve as expected with today's breakout. Additionally, the PMO triggered a crossover BUY signal. Stochastics are now above 80 and the RSI is rising, positive and not overbought. Conditions are ripe for higher prices.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT fell today despite a slight drop in the 20-year yield. TLT broke out of the falling wedge pattern as the formation suggested, but it failed as soon as it hit overhead resistance at the 20-day EMA. The RSI is negative and Stochastics have topped below net neutral (50) so despite last week's PMO crossover BUY signal, we would expect prices to continue lower.
Good Luck & Good Trading!
Carl & 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 Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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