In this morning's DecisionPoint Trading Room (aired today at 3p ET), Carl took a close look at the VIX over the years. We discussed last week that sentiment simply wasn't THAT bearish yet. This chart really reflects what we're talking about.
The VIX is often considered a "fear gauge", telling us how "fearful" market participants are. The higher the reading, the more fearful. We would draw your attention to the readings that occurred during the last 25 years. Notice that readings were exceedingly high at the end of the Financial Crisis and COVID-19 bear markets. Readings after 9/11 were much higher than now. There are VIX spikes during deep declines in 2010, 2011, 2015 and 2018. Those readings are still MUCH higher than what we have now. Readings today are insignificant in comparison.
Conclusion: We shouldn't expect market pivot points based on sentiment until readings are "off the charts".
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:If you hadn't already figured out that the market is turning over in the short term, the RRG certainly displays this. Energy is in the Leading quadrant and has managed to swing into a bullish northeast heading. Past that, every sector has bearish southwest headings. And, we can add that all of those sectors have PMOs declining in overbought territory.
Weekly: The weekly RRG is beginning to deteriorate, but not as much as we would've expected. While most sectors are holding northeast headings, some of those sectors are beginning to see southward components. XLY, XLC and XLK are three. XLV has really taken a turn for the worse as it has reversed course and is not headed toward the Lagging quadrant in a bearish southwest direction.
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: After closing below important support at the 50-day EMA on Friday, the decline continued, pushing price below support at $405. Price is now headed down to test strong support around $392. That is where the rising bottoms trendline arrives too.
We discussed the VIX in the open. In the short term, we do see another puncture of the lower Bollinger Band on our inverted scale. Typically we will see an upside reversal or at least a pause after a puncture of the lower Band. Indicators continue to go from bad to worse with Stochastics reversing course and heading lower.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Lows expanded but we are nowhere near the levels we saw at the June bottom.
Climax* Analysis: There were no climax readings today. Friday we identified a downside initiation climax which seems to be fulfilling its promise.
*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 NEUTRAL.
Interestingly, STOs are continuing to move higher even as price falls apart. This is setting up a positive divergence with price. We are seeing very oversold readings on %Stocks > 20-day EMA and %PMOs Rising.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERBOUGHT.
The ITBM/ITVM continue lower and remain very overbought. %PMO BUY signals is oversold, but we saw even lower readings at the June bottom.
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 BEARISH: We have a low percentage of stocks > 20/50-day EMAs and those percentages are far lower than the SCI reading of 71%.
The intermediate-term bias is BEARISH: While more 70% of stocks have a 20-day EMA above their 50-day EMA, the SCI is in decline and just had a negative crossover its signal line.
The long-term bias is BEARISH: The GCI topped last week below 40%. Participation of stocks > 200-day EMAs is equal to the GCI and falling.
CONCLUSION: The market is looking very bearish, but there is a ray of hope. The STOs are in a positive divergence with price - the market is falling, but they are rising. The VIX also punctured the lower Bollinger Band on our inverted scale. We also have quite a few indicators in oversold territory. This would be a good place to see a bounce or pause. However, we do not see it lasting.
Erin is 40% exposed (primarily in Energy and Utilities).
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Bitcoin lost support over the weekend and is continuing in its declining trend. Indicators aren't encouraging over all given the RSI is negative, PMO is falling and Stochastics are falling in oversold territory. $17500 is the next stopping point, but we think that level will fail to hold as well.
Interest rates continue climb higher in rising trends. Inversions continue with more likely on the way.
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 traveling within a bearish rising wedge. However, indicators are very favorable so we do expect $TNX to continue higher and probably breakout rather than breakdown.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar hit overhead resistance and has been consolidating. Indicators are still strong so resistance will likely be broken. There is a tiny OBV positive divergence with price lows last week.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: A strong Dollar means Gold will likely continue to struggle. It is trying very hard to hold support, but there is a negative RSI along with a PMO SELL signal and declining Stochastics.
GOLD Daily Chart: Discounts remain very high, but that bearish sentiment has not translated to higher prices.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are on the ropes. They are holding support, but given the complete lack of participation and the dreary Gold charts, we would expect this support level not to hold.
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 broke from the declining trend and is now preparing to overcome resistance at $80. Energy is one of the only bright spots in this market, but Oil has been coy, moving sideways within a wide channel and failing to breakout. It's time for it to really breakout...at least that is what the indicators are suggesting.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Price action looks very much like a reverse flag. The pattern suggests price should easily drop below the June low. One positive? Stochastics are rising and the PMO is not pointed downward. We would still look for at least a test of the June low, but more likely a breakdown there.
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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