Today the Price Momentum Oscillator (PMO) triggered a crossover BUY signal on XLF. While there are things going right on this chart, there are also things going wrong.
Here is evidence for bulls:
This PMO BUY signal is accompanied by a bullish double-bottom chart formation. It also comes after a breakout from a bullish falling wedge. Stochastics are rising and have reached positive territory above net neutral (50). It is seeing relative strength against the SPY. Participation is mixed. The SCI and GCI have been stagnant, but we are seeing more stocks with price above their 20-day EMAs, far more than those with price above their 50-day EMA or 200-day EMA. That gives XLF a short-term bullish bias. Caution is warranted. The double-bottom hasn't been confirmed and price has overhead resistance to push through at the June/July lows and 20-day EMA.
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® Daily and Weekly Charts:
The daily RRG gives us the impression that the market is at a significant bottom. All of the sectors have strong bullish northeast headings with the majority sitting in the Improving quadrant.
The weekly RRG is sobering in comparison.
XLE is the only sector that doesn't have a bearish heading. It is hard to tell, but XLE has moved up.
XLB and XLU are in the Leading quadrant. XLB should hit the Weakening and/or Lagging quadrant this week. It's very near the center of the RRG which basically tells us that in the last 5 weeks, it has made no headway. XLU is moving due south toward the Weakening quadrant as it loses strength.
XLV and XLP are sharing the Weakening quadrant with XLE. Both have bearish southwest headings.
The remainder of the sectors are in the Lagging quadrant. Given they all have bearish southwest headings, we believe the bear market is still in force.
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: Today saw a tiny breakout from the short-term declining trend. We have annotated a bullish falling wedge. Price should continue higher based on the chart pattern. The RSI is in negative territory and barely rising. The PMO has finally bottomed and is rising somewhat. The VIX is holding steady near its 20-day SMA.
Overhead resistance at the $400 level for the SPY hasn't been broken yet and it does have some distance to travel to overcome resistance at the 20-day EMA. Stochastics are rising, but we've seen failures here three times before.
Here is the latest recording:
Topic: DecisionPoint Trading Room
Start Time: May 23, 2022 09:00 AM
Meeting Recording Link.
Access Passcode: MayDP@23
S&P 500 New 52-Week Highs/Lows: New Highs expanded, but not significantly. The 10-DMA of the High-Low Differential looks very bullish and has given us a positive divergence. We didn't get the movement off our other positive divergences, but this is a good sign.
Climax* Analysis: Today there were climactic readings on all but SPX Net A-D, and SPX Total Volume contracted and did not confirm. We can still consider that there was an upside exhaustion climax, just not a very robust one.
*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 may be initiating a change of trend.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL.
STOs rose today which is positive. %PMOs Rising is looking more bullish, but that indicator is now reaching overbought territory.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
Both the ITBM/ITVM are contracting which is bullish. So far it hasn't affected the intermediate-term declining trend. We are still seeing an expansion in new PMO BUY signals which is very encouraging.
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.
Technically the short-term bias is improving given %Stocks > 20-day EMA is greater than %Stocks > 50-day EMAs. Many of the stocks' EMAs in the SPX are configured similarly with slowest EMA on top and faster on the bottom. Seeing more stocks above their 20-day EMA is constructive. More so when that percentage is higher than %Stocks above their 50-day EMA. We still read the short-term bias as somewhat bullish.
The IT bias is still bearish given the SCI is declining and is reading at a very low 22%.
The LT bias is also bearish. The GCI is falling and is at a low 39.6%.
CONCLUSION: It appears as if the positive divergences are beginning to exert some influence. Today's upside exhaustion climax doesn't inspire confidence in future price action. Yet, the daily RRG does show us new strength is out there and we have both a bullish double-bottom and bullish falling wedge in place on the SPY. If we see follow-through on today's bearish climax, we will know that bear market forces are still in play. If we do not, indicators are favorable enough to look for a short-term bear market rally. Erin is contemplating expanding her exposure to 30% from her current 20% or she will loosen her hedges if we see more rally.
Erin is 20% exposed with a 10% hedge in place.
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Yesterday's comments still apply:
"Support is still holding. Based on the reverse flag formation (with a "flag" that is a bearish descending triangle), if this level of support is lost the minimum downside target of the flag is 10,000."
Rates are still in a short-term declining trend. The previous rising trends on longer-term yields are now being broken.
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
Yesterday's comments still apply:
"$TNX confirmed the bearish head and shoulders pattern on Thursday when it broke below the red neckline. Price is still holding above support. Should it lose support, the pattern's minimum downside target is around 2.3%."
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar rallied somewhat but finished the day with a bearish filled black candlestick just under short-term resistance. Indicators are not really improving yet so we would look for consolidation at best and a drop to $26.50 at worst.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold began to rally, but was easily turned away at overhead resistance. The RSI has now turned down in negative territory. The PMO and Stochastics are still somewhat favorable.
GOLD Daily Chart: Discounts are beginning to shrink as investors slowly turn back to Gold. We mentioned yesterday that $GOLD's price pattern looks like a bullish "V" bottom, so despite today's failure, we are still bullish on Gold. Right now it is fighting global favoritism of US currency given the war in Ukraine.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners fell today, likely helped along by Gold's decline. The RSI is rising but is still negative. The PMO is very close to a crossover BUY signal, but Participation is still a problem. It is very thin based on the SCI reading at 0% and only a slight amount of miners with price above their 20/200-day EMAs. Overhead resistance at the 20-day EMA and January high are looming.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: No breakout yet so yesterday's comments still apply:
"We've yet to see the breakout from the bullish ascending wedge, but last week's low never reached the rising bottoms trendline. That suggests that fifth time will be a charm and we'll get that breakout. The RSI and Stochastics are very favorable. The PMO is rather useless given its flat pattern."
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT broke out slightly, but ended the day with a bearish filled black candlestick. Indicators are favorable though. Knowing the 20-year yield is in a declining trend, TLT should manage a test of the 50-day EMA. We still believe interest rates will resume their rise so upside potential is likely limited.
Good Luck & Good Trading!
Erin and Carl 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.
Helpful DecisionPoint Links:
DecisionPoint Alert Chart List
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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