As we saw a positive divergence materialize on the $SPX with New Lows, we thought it a good time to bring out the NYSE New Highs/New Lows chart. It also has a positive divergence between shrinking New Lows and price bottoms that were moving lower. This indicator has been very successful finding market bottoms. Based on the chart below they can come before a long rally or a very short one.
When we expand the timeframe to include the bear market of 2020, you can see that a positive divergence on New Lows arrived at the bear market bottom.
Conclusion: While we aren't calling this the end of the bear market, the current positive divergence is very encouraging as we finish a strong rally day.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
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 RRG: After today's strong rally, we are seeing some interesting moves on the daily RRG. Let's face it though, this is still a highly bearish RRG, but it is suggesting what sectors are being rotated into by investors. XLK, XLP and XLV are all reversing their headings back toward the Improving quadrant. Those still suffering the most are XLU and XLE which still have very bearish southwest headings. The others are curling somewhat back toward Improving.
Weekly: Given we are looking at a longer-term RRG, we shouldn't expect much change. A few items to note are XLE's strong northeast heading which has now moved it into the Leading quadrant and XLB's abrupt change into a bearish southwest heading.
XLY and XLU may be in the Leading quadrant, but their headings are deteriorating, pushing them toward the Weakening quadrant.
XLV is the only sector in the Lagging quadrant, but it appears it will soon be joined by XLP.
XLC, XLK and XLRE all have bearish southwest headings that could land them in the Lagging quadrant sooner rather than later.
The remainder, XLF and XLI, don't have bearish southwest headings, but the strong southward component of the heading is winning.
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 finally saw a strong rally day. You should note that the candlestick is within the trading range between $360 and $370. We could remain in this range and see more of a pause than a big breakout rally. However, the VIX suggests otherwise. It punctured the lower Bollinger Band on our inverted scale again. Typically these punctures lead to higher prices. Of course, that didn't turn out to be the case the last three trading days.
The PMO is decelerating and not rising yet. The RSI is rising out of oversold territory and Stochastics have turned up with %K passing through %D. That doesn't always result in higher prices, but it is certainly promising.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: The positive divergence on New Lows is "locked in" now that we have an official price bottom. The 10-DMA of the High-Low Differential is about to bottom in very oversold territory.
Climax* Analysis: There were strong and unanimous climax readings today, giving us an upside initiation climax. SPX Total Volume is confirming gently. At this writing, the futures are up strongly, so we'll look for a continuation of the rally tomorrow.
*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 OVERSOLD.
The STOs have turned back up which we believe is also confirming this upside initiation climax. Participation of Stocks > 20-day EMA expanded nicely.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The IT indicators aren't confirming just yet as the ITBM/ITVM both continued lower. They are significantly oversold. A turn on these indicators would tell us that we would see a more lengthy bear market 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.
We see improvement in participation, but overall, there's no denying the bearish nature of our bias chart. There is a bearish bias in all three timeframes.
Here's what we want to see:
- Stocks moving above their 20-day EMAs
- Next, stocks moving above their 50-day EMAs
- There is a higher %Stocks > 20/50-day EMAs compared to the SCI
While all of those conditions haven't been met, participation of stocks > 20/50/200-day EMAs did see improvement.
CONCLUSION: The market finally rallied! The question now is whether it will have staying power. Based on today's upside initiation climax, rising STOs and positive divergence on New Lows, we should at least see higher prices in the short term. An upside reversal on the ITBM/ITVM would tell us the rally would have more staying power. For now we are short-term bullish and more neutral in the intermediate-term timeframe. It's probably a bit early to completely sell your hedges; relaxing them somewhat seems reasonable.
Erin's exposure is 10% with a 5% hedge.
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Bitcoin closed above the 20-day EMA for the first time since the sharp decline earlier this month. It is still bounded within a trading range between $18,000 and $20,500, but indicators are finally suggesting a possible breakout ahead. The RSI is nearly positive and the PMO triggered a crossover BUY signal today. Stochastics are on the move. Probably the best Bitcoin has looked since the failed breakout above the 50-day EMA.
Yields backed off considerably today which finally put Bonds back in the driver's seat.
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 we mentioned the beginning of parabolic activity. Today the parabolic broke down. A parabolic on a monthly chart can end in a catastrophic decline. This parabolic is on a daily chart and has short-term implications. At this point $TNX is correcting back to the rising trend line, and that may be sufficient to unwind the excess.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Yesterday we also mentioned that the dollar had gone parabolic, and today it also broke down. There are two rising trend lines offering obvious support. The most accelerated is drawn across the September low. That could easily stop the decline, but failing that, a less accelerated line is drawn across the August low.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: The bearish filled black candlestick didn't stop Gold from rallying strongly. It has now recaptured support at the mid-September lows. Indicators are coming back to life, but the PMO is still lagging.
GOLD Daily Chart: Discounts finally backed off today but are still holding 4th place for the highest reading since 2010. Extreme bearish sentiment could finally be helping Gold. We won't count on sentiment, but the RSI is rising strongly and $GOLD's PMO has bottomed. The $GVX is still oscillating below its moving average on our inverted scale which tells us there is still internal price weakness.
GOLD MINERS Golden and Silver Cross Indexes: GDX is finally starting to look appealing as an investment. There is still work to do, like a break of the declining tops trendline, but after an over 7% rally, the internals are improving. The PMO is rising again and participation of stocks > 20/50-day EMAs expanded greatly. If you're going to dip your toes in, you'll probably get an opportunity on a natural move lower toward the breakout point.
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 rallied strongly, but price remains below resistance. The RSI and Stochastics are rising again, but the PMO still is indecisive. As with $GVX, $OVX is oscillating below its moving average on the inverted scale, so there are internal problems to complicate matters. A break above resistance would go a long way to improve this chart.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Bonds benefited greatly from falling yields. With rates seeing parabolic breakdowns, we would expect TLT to at least get above resistance at about $106.
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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Price Momentum Oscillator (PMO)
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