First, we apologize but there is no recording of today's DecisionPoint Trading Room. We will revisit some of the topics we hit today in the room next Monday.
One of the eye-catchers this morning was Utilities (XLU). It's certainly not a "sexy" area of the market like Technology (XLK), but did you know that it hit new all-time highs last Friday? Today XLU broke out strongly continuing to hit new all-time highs. No one has been discussing this so we thought we'd bring it to your attention.
This sector is very overbought in nearly every way. The RSI is overbought. The PMO is overbought. The Silver Cross Index (SCI) and Golden Cross Index (GCI) are also overbought. Participation of Stocks above their 20/50/200-day EMAs are reading at or near 100%! XLU is cooking!
Overbought conditions are certainly not welcome, but you can see that these conditions can persist. Note the current overbought readings have been around for about a month. Between March and mid-April, we had similar overbought readings. We shouldn't ignore overbought conditions. It appears the indicator that warned us of a possible decline is the PMO. It is currently accelerating higher, but the minute it gets iffy or turns back down, time to let those Utilities stocks go. We should have other hints that a top is near, but right now it looks as though it is going to continue to accelerate higher.
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: We have only three sectors in the Weakening quadrant. Of the three, XLV looks okay given its bullish northeast heading. XLP and XLE are continuing to weaken.
XLC and XLF are showing the most strength with their bullish northeast heading within the Leading quadrant. All other sectors look suspect as they travel southward toward the Weakening quadrant. This certainly suggests a top could be nearing.
Weekly: The weekly chart shows us that the market is in a strong rising trend given all sectors with the exception of XLB and XLE have bullish northeast headings and are on their way toward the Leading quadrant. Of course, Utilities (XLU) which we discussed in the opening, is already in the Leading quadrant.
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 a fourth day of higher prices. One concern would be tapering Total Volume on this rally and also seeing the VIX top after a puncture of the upper Bollinger Band on our inverted scale. We've redrawn the bearish rising wedge. The prior wedge was broken to the upside which was especially bullish.
Other than being overbought, the indicators are positive with the PMO accelerating higher, the RSI positive and Stochastics hovering above 80.
Here is the latest recording:
We apologize but due to technical difficulties (wetware problem), there is no recording for today's DecisionPoint Trading Room. We will be back next week and will make sure to hit the "record" button. You'll find last week's recording HERE.
S&P 500 New 52-Week Highs/Lows: New Highs are expanding, but aren't at overbought levels. The 10-DMA of the High-Low Differential is lumbering slowly higher. We would expect to see more New Highs by now based on the current market rally, so that may be indicating a problem under the surface or simply a changing of the guard.
Climax* Analysis: There were no climax readings today. Friday's upside exhaustion climax didn't resolve with lower prices, but that doesn't mean we can't see a top here.
*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.
Rising STOs are good for the market, but they are getting very overbought. Participation of stocks > 20-day EMA and %PMOs Rising are very overbought as well. However, these participation readings suggest a strong foundation.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The last time we saw the ITBM reading this high, it came before corrections. Most ominous is the last time this happened it was on the heels of the recovery rally in 2020. 91% of the index have PMO crossover BUY signals. That is overbought, but can also be looked at as a strong foundation to move prices higher. It is unusual to see this indicator remain overbought for so long. This is a testament to the voracity of the current rally.
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 94.2% of stocks above their 20-day and 91.4% above their 50-day EMAs. These percentages are much higher than the SCI reading of 73%. This implies that the SCI should continue higher.
The intermediate-term bias is BULLISH. The SCI has now moved above 70% which is bullish.
The long-term bias is Neutral to BULLISH in our opinion. We have 63.8% of stocks with price above their 200-day EMA and that is higher than the GCI reading of 33.2%. The GCI has had a positive crossover its signal line and is rising, albeit very slowly.
CONCLUSION: Despite highly overbought readings on the majority of indicators, the market continues to march higher. Overbought conditions can persist in a bull market, but generally we see price quickly top in a bear market. The persistence of the overbought indicators suggests the bear market could be in our rear view window, but... overbought conditions will eventually pull price downward whether you're in a bull or bear market. It seems we're overdue for a pullback or correction.
Erin is 60% exposed to the market.
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As we suspected, Bitcoin hit the top of the bearish rising wedge and is moving back down. We expect a breakdown this time around. Price has been holding above the 20/50-day EMAs, but the RSI and Stochastics have topped. The PMO is technically rising but is already starting to look toppy.
Other than on the 1-month and 3-month yields, we see broken declining trends. However, the new rising trends in interest rates are looking tentative.
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 is in a short-term rising trend, but is bounded at $29 and the 50-day EMA. Thursday's big jump is still being digested. The PMO is topping and the RSI is back in negative territory. Stochastics are still bullish, but they have tipped over as well. It appears we will see more churn.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The RSI and Stochastics look very bullish as UUP breaks its short-term declining trend. The PMO has flattened but hasn't turned up. We expect to see more sideways movement between $28 and $28.75.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: Gold broke its very short-term rising trend and is now about to test the rising trend out of the July low. This looks like a bullish cup with handle. The RSI is still positive and Stochastics are oscillating above 80. We should see a resumption of the Gold rally, but it certainly is suspect right now having turned down at the May/June lows.
GOLD Daily Chart: $GOLD dipped below the 50-day EMA but closed above it. It is currently holding support at the January/February/May lows.
GOLD MINERS Golden and Silver Cross Indexes: With the pullback in Gold, Gold Miners took it on the chin. They have failed to hold the 20-day EMA. However, so far they are holding the rising trend out of the July low. Participation is deteriorating. We've been bullish on this group, but are seeing deterioration in participation. Keep stops in play on Mining positions.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Energy (XLE) was the biggest sector loser today. The rally last week was encouraging, but it came to an end with a big gap down. Support is here at the 200-day EMA for USO. The PMO is still technically on a crossover BUY signal, but Stochastics and the RSI topped in negative territory.
There is a clear support zone between the March low and April/July lows that should hold.
IT Trend Model: BUYas of 8/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Last week's Silver Cross is already in jeopardy. If TLT doesn't close above its 50-day EMA, we will get an IT Trend Model SELL signal. The PMO is on an overbought SELL signal and the RSI is negative.
The breakdown of the rising trendline drawn from the June low was a big problem and so far price has not been able to recapture that trend.
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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