Trading today was less than impressive. The question is whether this is simply digestion of the rally or indigestion which will lead to more downside. The 5-minute candlestick chart of the SPY is giving us mixed messages. The 5-minute Price Momentum Oscillator (PMO) triggered a crossover SELL signal in near-term overbought territory. Additionally the 5-minute RSI dropped quickly into negative territory. Yet, we have a bullish cup with handle pattern. Our current analysis implies we are experiencing the churn after the rally or a digestion period in the very short term. Longer term? Read on.
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® Chart: Below we have the RRG charts using the $ONE benchmark.
DAILY: The daily RRG is beginning to deteriorate. Yesterday all of the sectors had bullish northeast headings or at least northward headings. That picture is changing.
Those sectors that are beginning to see failure in the short term are XLC, XLV, XLE, XLU and XLB. All have somewhat bearish southeast headings with XLB having the only bearish southwest heading on the chart.
Those still gaining strength are XLY, XLRE, XLF, XLK and XLI which all have bullish northeast headings.
XLP is the only sector in the Lagging quadrant. It is seeing slight improvement given the northward component in its heading, but it is also traveling westward which will only get it in the Improving quadrant IF it maintains its northward heading.
WEEKLY: The big picture RRG in the intermediate-term timeframe shows us that the bear market is still with us as all of the sectors have bearish southwest headings.
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: The support line drawn across high between the double bottoms (confirmation line) withstood a hard test today, but price managed to close above it. We do have a bearish engulfing candlestick, but holding support at the 20-day EMA and confirmation line makes it less threatening.
Indicators weathered another down day without losing ground. The RSI is still positive, the PMO is rising out of oversold territory on a crossover BUY signal. Stochastics ticked lower but remain comfortably above 80. Total Volume was very low after an unusually high reading yesterday. This could be an indication that those selling into strength may be done.
Here is the latest recording:
Topic: DecisionPoint Trading Room
Start Time: May 31, 2022 09:00 AM PT
Meeting Recording Link.
Access Passcode: May#31st
S&P 500 New 52-Week Highs/Lows: New Highs contracted. We did see a few New Lows. Overall a neutral day. We do not like that the 10-DMA of the High-Low Differential is topping beneath the zero line.
Climax* Analysis: Yesterday's downside initiation climax failed to initiate a clear downtrend. Today we saw more climax activity giving us a downside exhaustion climax. Notably, SPX Total Volume contracted well below the 1-year daily average line, which suggests that the selling is drying up. The VIX is still not penetrating the upper Bollinger Band on our inverted scale. When that occurs it usually leads to a decline.
*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 UP and the condition is OVERBOUGHT.
All of these indicators are retreating from overbought territory. While we do not like seeing these indicators moving lower, it does alleviate overbought conditions. 82% of the SPX have rising momentum. That is enough to carry prices higher.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
Despite a lower close, all of these indicators are continuing to rise which does suggest higher prices are possible in the intermediate term.
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 was flat again today, keeping its 26.6% reading. Given it was previously rising, we read this as a neutral bias for the intermediate-term.
However, in the short term, we have far more stocks with price above both the 20-day EMA and 50-day EMA which suggests the SCI will begin rising again soon. The short-term bias is bullish.
The GCI is flat at 38.6%. Given we only have 36% with price above the 200-day EMA, the GCI won't likely be rising which gives us a long-term bias that is bearish.
CONCLUSION: Price broke above the confirmation line of the double-bottom formation on Friday. Through the first two trading days this week, that support/confirmation line survived two retests. Short-term indicators are relieving overbought conditions and intermediate-term indicators are still rising and are not at all overbought. Total Volume was well below the annual average suggestion sellers are drying up. This leads us to believe that the rally will eventually continue a bit longer.
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Bitcoin rallied strongly on Friday and stood still yesterday. Today, before reaching overhead resistance, Bitcoin tanked. It is back below the 20-day EMA and the RSI has reversed back into negative territory. The PMO didn't top, but it is decelerating. Stochastics topped before reaching above 80 suggesting that internal strength is waning. Looks like another retest of support ahead.
Rates are switching gears with long-term rates breaking their declining trends.
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
The bearish head and shoulders pattern executed when price dropped below the dotted red neckline, but $TNX has quickly reversed without little damage. Yesterday was a tiny breakout from the short-term declining trend. Today's follow-through suggests rates are back on track to continue moving higher.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar rallied today and closed above resistance at the early May low and the 20-day EMA. This has formed a tiny bullish double-bottom. It's tiny because price would only need to move to about $27.65 to fulfill the minimum upside target. Indicators are showing slight improvement with the RSI getting back into positive territory, the PMO flattening and Stochastics moving up slightly in oversold territory. The indicators aren't bullish enough to spark a big time rally in the Dollar yet.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: GLD formed a neutral doji candlestick pattern today. Indicators are mixed with the RSI and PMO bullishly rising (very slightly but rising) paired with Stochastics topping below 80.
GOLD Daily Chart: A rally in the Dollar did not help Gold today. Price is looking toppy on $GOLD despite the rising PMO on a crossover BUY signal and rising Stochastics. It has more work to do in the short term.
GOLD MINERS Golden and Silver Cross Indexes: This industry group is still "iffy". Gold is floundering and that is putting downward pressure on Gold Miners. The PMO is rising on a crossover BUY signal, but not convincingly. Stochastics are flattening and the RSI is negative. Participation is almost non-existent given the SCI is at zero and %Stocks > 20/50/200-day EMAs are thin.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Another filled black candlestick for USO. Yesterday's didn't result in a decline, but it did see depressed price action. While the candlesticks look bad, the indicators look fairly good. The RSI is firmly in positive territory. The PMO is rising on a crossover BUY signal. Stochastics are moving lower but remain above 80 suggesting internal strength is still there. It's been nine straight rally days for USO, we could be looking at the beginning of a short pause.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Yesterday's comments still apply:
"With yields turning back up, TLT failed to hold support. In the process, the RSI turned back down in negative territory and the PMO is beginning to top well-below the zero line. Stochastics have quickly turned down. It appears the bear market rally in Bonds is finished almost before it really began."
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.
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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