Stock futures were up in the early hours of this morning, that is until the CPI was announced at 8.3%. Then the bottom fell out. There is also the threat of a rail strike and dock strike. There was another whipsaw signal change for SPY as the 20-day EMA crossed down through the 50-day EMA (Dark Cross). Since those EMAs are below the 200-day EMA, the IT Trend Model goes to SELL. These are probably not the last Dark Crosses we will see. However, with EMAs so closely braiding, we could see numerous back and forth signal changes.
Consumer Staples Sector also gas a 20-day EMA/50-day EMA downside crossover (Dark Cross), generating an IT Trend Model NEUTRAL signal (the 20-day EMA and 50-day EMA are above the 200-day EMA. On a big down day it is unusual to see a more "defensive" sector dropping so precipitously. Of course of the 11 sectors, XLP was in 4th place on today's decline, behind XLE, XLV and XLU. XLV and XLU are considered "defensive" so all in all, this decline wasn't as bad as drops in other sectors.
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):
Today's decline didn't change the daily RRG so yesterday's comments still apply:
"We see bullish northeast headings popping up and if not northeast, they are traveling northward from the Lagging quadrant. If this rally continues, we would expect to see nearly all of these sectors reach the Improving quadrant (not visible).
XLE was on a fast train to the Lagging quadrant, but that is changing as it begins to curl back toward the Leading quadrant. XLU took a brief dip into Lagging, but continues to move quickly toward Leading."
Yesterday's comments still apply:
"XLV has turned southwest and is the only sector headed toward the Lagging quadrant. All others should hit the Leading quadrant to join residents XLP and XLU. We do see some deterioration of heading on XLC and XLRE which could actually end up in the Lagging 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: The short-term rising bottoms trendline held up on today's crash, but indicators took a huge hit. The VIX reading soared, but on our inverted scale, the lower Bollinger Band was not penetrated. This leaves us vulnerable to more downside.
The PMO topped aggressively below its signal line which is very bearish. The RSI moved back into negative territory below net neutral (50). Stochastics don't look terrible, but they did tick lower on the day.
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S&P 500 New 52-Week Highs/Lows: New Lows expanded as we would expect. If they can stay above the late August reading, it could set up a much needed positive divergence. Until we have a second price bottom, we won't know.
Climax* Analysis: Following yesterday's upside exhaustion climax, today saw strong and unanimous downside climaxes, giving us a downside initiation climax. In confirmation, SPX Total Volume expanded above the one-year daily average volume.
*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 OVERBOUGHT.
It was surprising to see the STOs still rising after today's crash. It has put them both in very overbought territory which isn't good. Participation completely reversed and those readings are now getting close to oversold.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
Both the ITBM/ITVM continue to move higher but are now in neutral territory. In a bear market, neutral territory is dangerous because more than likely you will see resolution to the downside. We still have a decent amount of PMO BUY signals, but it ticked lower today too.
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.
Today's decline reversed the market biases from bullish to bearish. Here's why:
The short-term bias is now Bearish given the steep decline in participation of %Stocks > 20/50-day EMAs sharply dropping.
The intermediate-term bias is Bearish. Not only are the %Stocks > 20/50-day EMAs lower than the SCI, the SCI has topped beneath its signal line.
The long-term bias is Bearish. The GCI is at a very low reading and we see fewer stocks above their 50/200-day EMAs. The %Stocks > 50/200-day EMAs is lower than the GCI percentage.
CONCLUSION: We don't generally repeat the conclusion and we won't. However, we did want to bring to your attention what the comments were yesterday:
"The indicators are in agreement that we are in a bear market rally. However, short-term indicators are overbought and we did see a second upside exhaustion climax. The overbought short-term indicators and this exhaustion climax do suggest we will see a pause in the action or a possible drop this week. Longer-term, we still believe we are in a bear market so keep your bullish expectations tempered."
We expressed concern and that concern has been confirmed. Bearish signals are nearly always confirming right now so today's downside initiation climax is a big problem. Additionally, STOs are overbought and we have an ominous PMO top below the signal line. This does look like the end of this particular bear market rally given the voracity of today's decline.
Erin is 30% exposed to the market.
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We finally got bullish on Bitcoin given the strong breakout from the bullish falling wedge and 20/50-day EMAs. The indicators were finally rising in agreement. Well, the bottom dropped out. We now have a negative RSI, PMO top beneath the zero line and sharply declining Stochastics...all in one day. The breakdown below the 20/50-day EMAs and below the July/August bottoms. Not a good look. More decline likely ahead.
Rates continue to march skyward with little relief in sight.
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 now testing overhead resistance at the June high. Given the rising trend channel, strong RSI, rising PMO (which isn't overbought) and Stochastics oscillating above 80, we expect to see the breakout.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar was struggling and yesterday moved below the 20-day EMA. UUP rebounded strongly on today's market decline. This has reversed some very negative indicators. The RSI stayed in positive territory. The PMO bottomed above the signal line which is especially bullish. Stochastics got back into positive territory above net neutral (50). The OBV is also confirming today's rally.
Given price did not have to test the bottom of the bearish rising wedge before reversing, we expect higher prices.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: Since the Dollar seems to be the hideout of choice, Gold has not done well. We still believe it will, but it is very weak right now. Given the negative RSI, PMO top beneath the signal line and zero line and Stochastics topping in negative territory, look for Gold to lose this support level.
GOLD Daily Chart: You'll note that we've added $GVZ. This is the volatility index for Gold. It is on an inverted log scale as we do on the $VIX. $GVZ hasn't penetrated the lower Bollinger Band yet so Gold is vulnerable for more decline.
GOLD MINERS Golden and Silver Cross Indexes: GDX was looking stronger than it had in some time. Gold was on the rise and so was the market. Today's double-whammy of a big Gold decline and a giant market decline hit Gold Miners hard. The PMO is still on a crossover BUY signal and there is some participation of stocks above their 20/50-day EMAs. If GDX loses too much participation, Erin will be abandoning her small position in GDX.
(Full Disclosure: Erin owns GDX.)
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: We said yesterday that we didn't trust the rally in Crude Oil. However, indicators didn't really break down. The RSI is still in negative territory but is flat. Stochastics and the PMO are still rising. We added $OVX to the chart. We discussed it at the top of yesterday's DP Alert. It is still pushing through the upper Bollinger Band so another decline could be ahead for tomorrow.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Support at the June low failed to hold. Not a big surprise given yields continue to soar. TLT did finish higher on the day so this could be a bottom, but indicators are confirming that hypothesis right now. The RSI is negative and flat. The PMO is in decline beneath the zero line. Stochastics are oversold but haven't made a meaningful move to the upside.
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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