The NAAIM Exposure Index has reached its lowest point since the price top in late-2021, which should have the attention of short-term traders wanting to catch the next bounce. Unfortunately, sentiment indicators do not deliver exact buy and sell signals, or precisely identify exact bottoms or tops.
We can see that AAII Sentiment was lower three weeks ago, and yet, prices kept falling. FYI, that recent AAII Bears reading is the lowest since the 2009 market low when the percentage of bears was 70.3. So it is low, but it can go lower.
Conclusion: When investors are extremely bearish, it is bullish for the market, but it is not an action signal. It shows that recalcitrant investors have finally acknowledged that the market is in distress. Once these late-comers have arrived, it is an indication that perhaps all the potential sellers have sold. We keep this in mind as one of many market condition issues upon which we will base our decisions.
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® Daily Chart ($ONE Benchmark): The most bullish sectors on the RRG are XLV and XLU which are moving in the bullish northeast direction in the Improving quadrant. XLC is also in the Improving quadrant, but hasn't quite gotten the bullish northeast heading. It is still vulnerable to drop into the Lagging quadrant.
Speaking of the Lagging quadrant, all of the sectors within, with the exception of XLRE, are traveling in a bearish southwest direction. The weak are getting weaker. XLRE is headed toward Improving, but it has a lot of ground to cover before reaching that quadrant.
XLE is off on its own in the Leading quadrant. It has a bearish southwest heading which suggests there is weakness to deal with in the Energy 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: SELL as of 5/5/2022
SPY Daily Chart: With SPY testing the support of last week's low, we wonder if we'll see a bounce off that support. Indicators aren't on board given the RSI is negative and still falling. The PMO is traveling lower after a very bearish top beneath the signal line.
Stochastics are also not suggesting a rebound here as they topped in negative territory below net neutral (50).
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: New Lows expanded, but we are watching this chart closely. The last few major bottoms in the market have come on positive divergences between price lows and New Lows. If we rebound here, it won't count because we would technically still have rising price bottoms.
Climax* Analysis: There were no climax readings today. And market action was relatively quiet, appropriate for a day following a downside initiation climax. The VIX is already nearing the upper Bollinger Band on our inverted scale. Typically a puncture of the upper Band leads to lower prices. The Bands have squeezed together making that an easier task so we'll take it with a grain of salt if it happens.
*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.
While we state above that the condition is "Neutral", we note that this level has proven to be overbought for the STOs during this decline off the March high.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The positive divergences on the ITBM and ITVM didn't result in higher prices. So while you see them annotated, the positive divergence has basically expired. Less than one quarter of the SPX have PMO BUY signals and it is getting worse.
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 SCI has topped beneath its signal line and the GCI is accelerating lower. Participation of stocks above their 20/50-day EMAs are less than 17%. Only 28% have price above their 200-day EMAs which suggests the GCI will continue even lower.
Therefore, the bias is bearish in all three timeframes.
CONCLUSION: Today's market action falls within our expectation of low volatility toward the end of options expiration week. No guarantees, but tomorrow should be relatively quiet as well.
While sentiment is very bearish, the VIX, also known as the fear index, has not exceeded 40 since the bear market began. So while investors are bearish, they are not yet fearful enough for capitulation. This is clear given it is rising again on our inverted scale. Support at $380 for the SPY is tenuous at best and given the PMO, RSI and Stochastics are still negative, it will likely give way.
Erin is 20% exposed to the market with a 10% hedge.
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Bitcoin is on life support as it clings to long-term support. Stochastics and the RSI are showing some signs of life, but the PMO is still negative. From yesterday:
"With price consolidating we now see a bearish reverse flag developing. The downside target for these patterns is calculated by subtracting the length of the flag pole from the breakdown point. In this case, by using 25,000 as the point of a possible breakdown and the top of the flagpole conservatively being 40,000, the minimum downside target for Bitcoin would be $10,000! This could get very ugly."
20 and 30-year yields continue to pullback making Bonds more attractive.
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 nearly confirmed the head and shoulders topping formation with a small puncture below the rising neckline. There are plenty of support levels, but the key one is the 50-day EMA and 2.6%.
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 sharp short-term declining trend. Support has now arrived, but today it lost the 20-day EMA. We would look for a test of $27 for UUP.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: With the Dollar falling today, Gold got a boost. The PMO isn't rising yet, but it has decelerated over the past week. Stochastics are rising again.
GOLD Daily Chart: Discounts are still elevated suggesting investors are still very bearish on Gold. That is good for Gold as sentiment is contrarian. This was an important bounce off strong support. If we can see this current resistance level at the 200-day EMA overcome, there is a good chance we will see a significant rally for Gold.
GOLD MINERS Golden and Silver Cross Indexes: GDX enjoyed a comeback today with the rise in Gold prices and slowing of the market decline. Like Gold, it is showing some signs of life. We finally are seeing a few Miners with price above their 20-day EMAs which is a good start. We'd still be careful with this industry group if you dip your toes in. Tight stops are suggested.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:
"The bullish ascending triangle pattern isn't busted yet, it just appears that fourth time isn't a charm for a breakout. We will want the rising bottoms trendline that forms the bottom of the triangle to hold up. Indicators are soft so a near-term breakout will likely have to wait."
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT rallied but stopped at resistance and formed a bearish black filled candlestick. This has formed a double-bottom pattern. With yields turning back down, the ground is fertile for TLT to rally. Stochastics and the PMO look good, but the RSI still has some work to do to get out of negative territory below net neutral (50).
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 Sector Chart List
Price Momentum Oscillator (PMO)
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