If you wander through the "Twittersphere" you'll note the bearish tone of most analysts (we can say we're in that majority). Sentiment is contrarian so we need to see extreme bearishness. Two of our sentiment charts were updated today. We will say that the last bottom was accompanied by extreme bearishness. The question is whether it is bearish enough to look for the end of the bear market.
First is the American Association of Individual Investors (AAII), sort of the "cats and dogs" of investors. Anyone can go on their site and take the poll. The pool is therefore not static. However, it does give us a sense of what the majority of people are thinking/feeling. We have marked the major market bottoms so you can get a sense of where sentiment was at the time. First, we note that the bull/bear ratio is generally very low. Second, we note that the number of bears will be very high (more than 50% bears). We did see a spike in bearish sentiment this week, but it really isn't at a level where we look for major reversals or continuations. On the bright side, sentiment is not bullish enough to consider a major market top right now.
The second chart is the National Association of Active Investment Managers (NAAIM) exposure levels. The pool for this is mostly static and is made up of technical analysts who are money managers. Notice that exposure levels are typically very low at market bottoms. We don't have that right now. We do have NAAIM exposure readings moving lower meaning there is some bearish activity, but nothing extreme. Again, on the bright side, we don't have extreme bullish readings either.
With sentiment not being extremely bearish, we believe we are vulnerable to downside, but readings aren't bullish enough to expect a major top either.
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® Charts $ONE Benchmark:
Daily: The deterioration of the daily RRG is breathtaking. Go to the DP Alert from a week ago and you'll see what we mean. At that time the majority of the sectors were in the Leading quadrant. In one week, all of the sectors with the exception of XLP and XLE, were the Weakening quadrant with bearish southwest headings.
Of concern is XLP and XLE. They were the last bastions of hope of keeping this rally on track and now they are moving southward.
Weekly: The intermediate-term RRG still looks bullish. Every sector has a bullish northeast heading. XLU is the strongest given its position in Leading. XLE has finally made the turn into a bullish northeast heading this week.
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 had been looking for a pause and instead we got a breakout above the 20-day EMA and the June top. The RSI has turned back up in positive territory and the PMO is decelerating. As we would expect, the VIX has rebounded off the lower Bollinger Band on our inverted scale. The recent punctures had been calling for a pause or rally push. We got the latter. We still need to be mindful that the VIX is below its moving average which implies internal weakness.
Stochastics tipped back up, but still look unhealthy.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: No New Lows today and we saw a slight expansion of New Highs. The 10-DMA of the High Low Differential is still toppy. We'd like to see it reverse.
Climax* Analysis: We got unanimous climax readings today, but for an upside initiation climax, we would have liked to see confirmation by SPX Total Volume, unfortunately, it was sorely lacking. Nevertheless, tomorrow we may see an expansion of investor interest reflected in volume. More than likely investors are holding their breath in anticipation of the FOMC's Jackson Hole meeting.
*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 OVERSOLD.
STOs continued to climb and clearly called today's rally given they reversed yesterday. Participation is expanding with nearly one-third of the index having rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is EXTREMELY OVERBOUGHT.
The ITBM and ITVM were mixed. When they reversed downward together, that called the last market top. If they both rise tomorrow, it would be excellent confirmation that the intermediate-term rising trend should continue further.
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 NEUTRAL to BEARISH: There are fewer stocks above their 20/50-day EMAs than the SCI which is at 78%. That is bearish. However, we are starting to see great improvement in %Stocks > 20/50-day EMAs.
The intermediate-term bias is BULLISH. We've moved this bias back to bullish given the SCI bottomed above its signal line and is above 70%.
The long-term bias is NEUTRAL, but improving again. The GCI has bottomed and we see more stocks above their 50/200-day EMAs.
CONCLUSION: We had expected the market to pause and remain below resistance. Instead we had a strong breakout and an upside initiation climax. Rather than a pause, it appears the market is ready to resume the rally out of the June low. However, this is a news-driven market and tomorrow's Fed meeting in Jackson Hole could either stimulate the rally or turn it over. Technicals are trying to improve with STOs still rising and split readings on the ITBM/ITVM. Participation is expanding nicely with both the SCI and GCI turning up today. This is a good place for a short-term rally to commence, but we should be ready for the Fed to possibly upset the apple cart.
Erin is 45% exposed.
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Yesterday's comments still apply:
"Bitcoin has been consolidating over the past week after a strong breakdown from the bearish rising wedge. We had seen a few signs of life, but the indicators are no longer encouraging. The RSI is negative and turning over. The PMO just dropped below the zero line. Stochastics had been rising, but have now topped in very negative territory. We believe this is the calm before the storm."
Yields continue in their rising 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
$TNX has again formed a bearish rising wedge. There is also a bearish engulfing candlestick. A small pullback makes sense, but if the indicators deteriorate further, we should prepare for a rally in Bonds.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Yesterday's comments still apply, but we do note a bearish filled black candlestick printed today:
"The Dollar hit overhead resistance and paused its strong rally. The RSI was getting overbought so this alleviated those conditions. Stochastics are angling lower, but remain strong above 80. The PMO has seen slight deceleration. We could see a small pullback to prior support, but overall UUP looks bullish."
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: Yesterday's comments still apply:
"Gold rose slightly again today. The cup with handle looks as if it is executing. However, we remain very cautious given this could turn into a short-term bearish reverse flag. Still there are signs of life. The PMO is attempting to reverse yesterday's crossover SELL signal and Stochastics have turned up again."
GOLD Daily Chart: Discounts are very high on PHYS. Investors are still very bearish on Gold. That bearish sentiment could be turning the tide given sentiment is contrarian, but we remain cautious.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments apply:
"Gold Miners rallied again today, likely helped along by Gold's rally. The PMO is trying to bottom above the signal line which would be very bullish. Participation improved but overall is very bearish. We should watch this group more closely. If the rally continues we will have a bullish double-bottom."
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Today USO formed a bearish engulfing candlestick. Seeing Energy make the turn downward on the RRG makes this a dangerous situation. Still, the technicals suggest a rally toward the July top.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT enjoyed quite a rally today. It comes right off support at the May low. If this rally gets moving, we will have a reverse head and shoulders pattern. The PMO is still declining and the RSI is still negative. There are bullish indications on the chart, but remain suspect of a longer rally in Bonds.
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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