The Consumer Price Index (CPI) dropped to 8.5% from the prior month's 9.1%, and the market reacted as if inflation was no longer a major concern. The market has been trending higher since mid-June, and we have noted its bullish tendencies at a time when our indicators are warning that we should be looking for a top. Today's economic news kept the bull in town a little longer.
Also today, the 20-day EMA crossed up through the 50-day EMA (Silver Cross) on the NYSE Composite and Financial Sector, generating IT Trend Model BUY Signals.
The NYSE is still making its way to the June high while most of the other indexes overcame that resistance level today. The chart is favorable based on the PMO anyway.
This sector has quietly been improving participation. It hasn't been a fast mover and so it hasn't overcome June highs yet. With %Stocks > 20/50/200-day EMAs showing such strong readings, we should see both the Silver Cross Index and Golden Cross Index continue to rise.
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 ($ONE Benchmark):
Daily: No real changes today so yesterday's comments still apply:
"All sectors are now in the Leading quadrant. Some are stronger than others based on their heading. XLE looks weakest as it heads toward the Weakening quadrant. XLB is also questionable given its southeast heading. While XLI doesn't have a bullish northeast heading, it is further away from the center meaning it is still outperforming most of the sectors. The rest have bullish northeast headings.
XLV is the only sector not in the Leading quadrant. It is directionless so we can't make any sweeping conclusions."
Weekly: No changes, yesterday's comments still apply:
"The weakest sector is clearly Energy (XLE). It has a strong bearish southwest heading that is taking it further into the Lagging quadrant.
XLB and XLU look suspect. XLB is taking its time leaving the Lagging quadrant given its strong westward heading. XLP is in the Lagging quadrant, but it should hit Improving quadrant very soon. XLU has a strong enough northward heading to get it into the Improving quadrant, but it likely will have to move through Lagging to do it."
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: BUY as of 8/2/2022
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: We were hoping to see price break out of the short-term bearish rising wedge. An upside breakout on a bearish pattern would be especially bullish. Today's price action was excellent though. We finally saw a breakout above the June highs. This is what we had expected back in June after the consolidation, but we were thwarted. The PMO is accelerating higher and the RSI is firmly positive.
Stochastics turned up again keeping them above 80. If we had to point to a problem, the VIX did puncture the upper Bollinger Band on our inverted scale. Typically this leads to a downside reversal for a few days.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Highs continue to improve overall this month. We now see the 10-DMA of the High-Low Differential rising again and that is generally good for the market.
Climax* Analysis: Very strong and unanimous climax readings today. We can make a case for initiation or exhaustion, but for the moment, lets allow for the possibility that today could be a one-day wonder based upon the CPI news. SPX Total Volume did not confirm. How the market opens tomorrow will be most informative. Until then, we will declare it an upside exhaustion 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 UP and the condition is NEUTRAL.
STOs are rising again in concert which is an excellent sign; however, currently they are showing a negative divergence with price tops. We will want them to continue to rise and overcome the declining trend.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITVM reversed course and is rising again. These indicators look great, but they are extremely overbought right now. We aren't seeing much deterioration on %PMO BUY signals. Those signals mean a large percentage of stocks could keep this rally going.
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 short-term bias is bullish given we have 87.8% of stocks above their 20-day and 81.8% above their 50-day EMAs. These percentages are much higher than the SCI reading of 63.8%. This implies that the SCI should continue higher.
The intermediate-term bias is bullish. While the SCI reading of 63.8% isn't above the 70% bullish threshold, it is healthy and rising.
The long-term bias is bearish but improving. We have 54.6% of stocks with price above their 200-day EMA and that is higher than the GCI reading of 30.4%. The GCI has had a positive crossover its signal line and is rising.
CONCLUSION: Climactic readings are coming after four days of decline so it could be easily interpreted as an initiation to higher prices. However, there is also compelling evidence that this could be a one-day pop on CPI news. Given the gap up, it could turn into a reverse island (meaning a gap down tomorrow). Overall participation is expanding and indicators are all in bullish agreement (with the VIX being an exception). We expect higher prices, but can't ignore the 'noise' of economic reports possibly changing the landscape.
Erin is 60% exposed.
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Yesterday's comments still apply:
"As with the market, Bitcoin is forming a bearish rising wedge. Currently it is bouncing off the bottom of the pattern. Indicators are mixed. Stochastics are oscillating in positive territory as is the RSI. The PMO is turning up but has been mostly flat as Bitcoin oscillates within the wedge. We would look for another test of the upper bound of the bearish rising wedge followed by a breakdown."
Rates are sneaking back up as declining trends are tested. Mixed results 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
Yesterday's comments still apply:
"We still have an overall declining trend on $TNX. An attempt at a rally occurred last week, but overhead resistance at the 20/50-day EMA is sturdy. Indicators are now beginning to look more positive. The RSI is still negative, but the PMO is nearing a crossover BUY signal. Stochastics are rising and hit positive territory. The declining trend hasn't been broken yet, so we aren't ready to get overly bullish."
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar broke down considerably. Not only did it lose support at the June high, it dropped below the intermediate-term rising bottoms trendline. Indicators were turning bearish, but now look very bearish. The RSI is falling and negative. The PMO is accelerating downward and Stochastics tipped over and moved into negative territory. Short-term support will arrive at $27.75, but it doesn't look like it will hold.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: Despite a heavy decline in the Dollar, GLD moved lower. It still hasn't overcome resistance. It should based on the $GOLD chart and positive indicators.
GOLD Daily Chart: The $GOLD chart looks far more bullish given the breakout. Discounts are still rather high considering the recent rally, but sentiment is contrarian so if investors stay bearish, Gold should benefit.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners (GDX) and Metals & Mining (XME) are both bottoming beautifully. This bottom is accompanied by a positive RSI and rising PMO. Stochastics are now above 80. Participation is healthy enough to dip into this group if you haven't already.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil was up but is still under the 20-day EMA. Indicators are showing improvement, but we would stay cautious regarding Energy, at least until we get a strong breakout above overhead resistance.
IT Trend Model: BUYas of 8/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Yesterday's comments still apply:
"The short-term rising trendline is tenuous as we are seeing price drift out of the rising trend. Support is holding up and the RSI is positive. Unfortunately, Stochastics are in decline and the PMO is topping. Rates seem to be on the rise again so TLT will likely remain stagnant."
Good Luck & Good Trading!
Erin Swenlin 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.
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