We mentioned yesterday that due to short-term indicators being so overbought and turning up that we should see a rally today. We also mentioned positive divergences were setting up. One of the critical determinants of a rally ahead is a positive divergence between price lows and New Lows. We weren't quite seeing that on the SPY New Highs/New Lows chart. We took a look at the NYSE and Nasdaq New Highs/New Lows charts and saw stunning positive divergences that had to be presented.
The SPY is seeing a very short-term positive divergence between price lows and New Lows, but it didn't see a positive divergence with May and June lows.
However, check out the NYSE and Nasdaq. Clear and strong positive divergences.
Add this to our already oversold short-term indicators and you have a recipe for a bear market rally.
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 chart using the $ONE benchmark. We don't need to tell you that this is a very bearish RRG. The bear market isn't leaving any sector unscathed at this point. It will be interesting to see which sectors pull themselves out of bearish southwest headings.
The weekly RRG confirms what we see on the daily RRG. It looks even worse with the majority of sectors in the Lagging quadrant holding bearish southwest headings. XLP and XLU, defensive sectors are in the Weakening quadrant, but their heading tells us that no sector is going unscathed. XLE which has held clear leadership among the sectors, had been indecisive regarding its heading, now it has made up its mind and is joining everyone else with a 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: Today's +1.43% advance was solid, but it doesn't look so big on the chart given the perspective of the recent huge declines. Now that we have a new bottom, we can start considering the possibility of a large bullish double-bottom.
The VIX has left oversold readings and is rising on our inverted scale. This is short-term bullish. When the VIX begins to penetrate the upper Bollinger Band, then we will be on the lookout for a short-term decline or consolidation. The PMO is still not healthy given it is declining after topping and triggering a crossover SELL signal well below the zero line, but both Stochastics and the RSI moved higher.
Here is the latest recording:
Topic: DecisionPoint Trading Room
Start Time: Jun 13, 2022 09:00 AM ET
Meeting Recording Link
Access Passcode: June@13th
S&P 500 New 52-Week Highs/Lows: Now that we have a price bottom, we can see a two-day positive divergence between price lows and New Lows.
Climax* Analysis: Today was the first uptick after the recent decline, and it was driven by an upside initiation climax.
*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 OVERSOLD.
With the bottoming of all the short-term indicators, in particular the STOs, it is probable that today was the beginning of a short-term rally.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The ITBM and ITVM have not yet bottomed, nor are they as oversold as we expect them to get.
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.
Even with positive divergences and oversold indicators above, the short-term bias is still bearish. While we did see some improvement in stocks above their 20/50-day EMAs, the percentages are still below the SCI.
The intermediate-term bias is bearish. The SCI is still declining and reading at a mere 16.4%.
The long-term bias is bearish. The GCI topped beneath its signal line and continues lower. Additionally we have much smaller percentages of stocks > 50/200-day EMAs than the GCI.
CONCLUSION: STOs are rising and currently IT indicators have positive divergences with price. Today's upside initiation climax paired with the pop on the VIX tell us prices should move higher in the short term. To sustain a longer-term rally, more stocks will need to participate through rising momentum, PMO BUY signals and getting price above key moving averages. At this point we see bullish short-term conditions, but the intermediate term is still murky given those indicators are still falling.
Erin is 20% exposed with a 10% hedge.
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Bitcoin tested support at $20,000 today, but finished above. It has been a painful 71% decline since the top in November. The PMO suggests this support level will be lost. However the RSI is oversold and Stochastics are turning back up in oversold territory. We would look for some churn and flirtation with $20,000 as support. If that support level is lost, we would consider $12,000 to be the next support level.
After a strong few days of rally, yields pulled back toward support today.
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
Today's pullback has helped the RSI move out of overbought territory. The rising trend has not been compromised and both the PMO and Stochastics are strong. We would look for rates to move higher.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The digestion period may have begun for the Dollar. This looks like a textbook cup with handle pattern. This is a bullish chart pattern and implies an upside breakout after the handle is finished forming. The RSI is still positive, the PMO is still rising and Stochastics remain above 80. We believe this will ultimately resolve to the upside as expected.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold had a nice rebound today possibly setting up a bullish double-bottom. The RSI is rising and the PMO has so far avoided a negative crossover its signal line. Stochastics are not favorable, but when they turn up, we should see an extended rally. We're bullish on Gold and think this may be the beginning of an intermediate-term rally.
GOLD Daily Chart: We thought that Gold would need to test the May low, but instead it rallied. That is a bullish sign.
GOLD MINERS Golden and Silver Cross Indexes: Between Gold finishing higher and the market finishing higher, Gold Miners had a great day. We would still caution you on fishing in this group given the complete lack of participation. 0% of stocks have price above their 20/50-day EMAs and the SCI has been stagnant at 3.45% for days and days.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO followed through on yesterday's bearish engulfing candlestick. This is forming a bull flag. A test of support at the 50-day EMA and support at April/May highs seems likely given the RSI in decline and PMO topping. It doesn't help that Stochastics have dropped below 80.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT got a boost as interest rates pulled back sharply today. Still, we don't see much upside potential here given resistance is very close at the May low. Indicators are trying to firm up, but they aren't there yet.
The PMO generated a crossover SELL signal yesterday well-below the zero line. The RSI is very negative and falling. Stochastics are oscillating below 20 and turned down again. You can see the breakout on the 20-year yield. Bonds are going to continue to languish.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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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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