We have two primary indicators in the short term (Swenlin Trading Oscillators (STOs)) and two primary indicators in the intermediate term (ITBM/ITVM). Of late they have been diverging with the short-term STOs moving lower and the intermediate-term ITBM/ITVM rising. We've included the chart below so you can see clearly what we're talking about.
While it is positive to see the ITBM/ITVM rising, they have gotten extremely overbought, particularly if we're still in a bear market (which we believe we are). The STOs moving lower and sporting negative divergences with price leaves us less bullish in the short term. So what do we make of this? We believe there is more upside potential, but now a breakout above the June top is critical. If price turns down here as the STOs seem to think it will, the decline could be difficult with the strongest support level at $390.
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: The weakest sectors are XLF given its southwest heading and XLC/XLV given their bearish heading within the Weakening quadrant. The strongest sector based on the RRG is XLU which has a bullish northeast heading within the Leading quadrant.
All other sectors are turning over and heading toward the Weakening quadrant. This does leave the current rally suspect.
Weekly: XLU has switched direction and instead of heading toward the Leading quadrant, it is on its way into the Lagging quadrant. Based on the daily RRG, we do expect XLU to begin improving on the weekly RRG..we'll see. XLE is going to be deep in the Lagging quadrant soon. The recent failed breakout for XLE certainly confirms that analysis.
XLB has made an about face and now has a bearish southwest heading within the Lagging quadrant. Not a good sign. All others have bullish northeast headings, but XLV did move slightly west.
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: Price is getting stuck below the 200-day EMA at the June tops. As noted in the opening, this area of resistance needs to be overcome. So far the short-term rising trend is intact and indicators are still favorable.
Stochastics continue to stay comfortably above 80 suggesting internal strength. Additionally, the VIX continues to oscillate above its moving average on the inverted scale which also suggests internal strength is present.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: We saw slightly more New Highs v. New Lows, but it was enough to move the 10-DMA of the High-Low Differential higher.
Climax* Analysis: There were no climax readings today.
*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.
STOs continue to contract and we are seeing deterioration of rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
As noted in the opening the ITBM/ITVM are still rising and bullish. However, %PMO BUY signals is trying to top and all of these indicators are overbought. The intermediate term is still bullish.
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.
%Stocks > 20/50/200-day EMAs ticked down slightly but yesterday's comments still apply:
"We have a strong bullish bias in the short term based on %Stocks above their 20/50-day EMAs being much higher than the SCI.
The intermediate-term bias is also bullish now given the sharp increase and trajectory of the SCI.
The long-term bias is still bearish given the GCI is only at 28.8%, but it is improving and should continue to improve given there are far more stocks with price above their 50/200-day EMAs than those with Golden Crosses. This will eventually push the GCI upward. Note how far the 50-day EMA is from the 200-day EMA on the SPY. The majority of stocks have this configuration so it will take time before we see the GCI begin to accelerate higher."
CONCLUSION: It appears that today was a digestion day for yesterday's rally. We need to see a breakout here or this rally could be cut short. We still have strongly positive indicators in the intermediate term that could provide a foundation for a rally continuation, but the breakdown of our short-term indicators do suggest a decline is ahead. Stay cautious. Erin opted not to expand her exposure until we get a breakout on the SPY.
Erin remains 55% exposed to the market.
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Bitcoin is now testing the short-term rising trend which happens to the bottom of a bearish rising wedge. The RSI is about to move into negative territory and the PMO has ominously topped. Stochastics already had topped. We expect this rising wedge to resolve downward.
Yields continued to cool today. Overall the declining trends are mostly intact on all but the 1-month rate.
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 bearish filled black candlestick was prescient. $TNX dropped back below support and is headed to test 2.5% again. Indicators are somewhat mixed. The RSI looks extremely negative, but Stochastics are rising out of oversold territory. The PMO is mostly flat. We expect this decline to continue.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Weakness is apparent on the Dollar. The RSI is now back in negative territory and the PMO is beginning to accelerate its decline. Stochastics are shaky as they are decelerating in negative territory. The rising trend is definitely in jeopardy.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: The hammer candlestick won the day as GLD managed a breakout move above the 50-day EMA. Strong resistance is arriving, but indicators have a bullish consensus.
GOLD Daily Chart: $GOLD did penetrate resistance at the June low. Stochastics have turned back up and as noted above the RSI and PMO look great. We believe this is the beginning of a rally that could take Gold back to $1875.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners rallied strongly on Gold's rally, but the price action is still suspect. We did get a close above the 20-day EMA and %Stocks > 20-day EMA improved today. The RSI is negative, but the PMO is rising out of oversold territory. It's a mixed bag. We believe Gold is going to continue to rally so GDX should benefit, but right now we still believe this industry group is very risky.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO continued its free fall and is now testing support at the 200-day EMA and April lows. Indicators are configured very negatively so holding this level will be a challenge. The breakout was so encouraging, but that filled black candlestick was apparently warning us to temper our bullish expectations. Now the RSI is negative, PMO generated a SELL signal today and Stochastics are falling in negative territory. USO will have a tough time holding this support.
IT Trend Model: BUY as of 8/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT failed to overcome resistance again. The rising trend is intact and the RSI/Stochastics are positive and rising. This is a nice looking bottoming formation after the recent IT Trend Model "Silver Cross" BUY signal. Rates are in a declining trend so Bonds should benefit, but it will likely be slow going.
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.
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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