The emotions today were easy to spot on the 5-minute candlestick chart of the SPY. Traders were holding their breath the past few days before the FOMC announcement on rate hikes. Price was quietly in a tight trading range and then, not surprisingly, the market took a nose dive when the hike was announced. Then, investors decided it was actually good news that the hike was only 75 points v. 100 points so the market rallied quickly. Of course, reality set in and that was all she wrote as the market dropped precipitously the last hour of trading.
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® Charts ($ONE Benchmark)
Daily: Today's decline spoiled the daily RRG. All but XLE have bearish southwest headings. Although XLE doesn't have a bearish heading, it nonetheless found itself in the Lagging quadrant today. Utilities which had briefly found the Leading quadrant, reversed harshly with a giant move into the Lagging quadrant.
Weekly: Yesterday's comments till apply:
"The longer-term RRG suggests that the most bearish sectors are XLV and XLP which have bearish southwest headings. XLV has hit the Lagging quadrant, but XLP isn't far behind.
As with the daily RRG, XLRE is looking particularly bearish as it makes its way toward the Lagging quadrant. All others with the exception of XLK and XLC should hit the Leading quadrant eventually; although a longer-term market decline would change everything."
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 high hopes that the bullish falling wedge would resolve to the upside, but the rate hike helped to pull the market downward and out of the pattern. A bearish conclusion to a bullish chart pattern is especially bearish.
Indicators are going from bad to worse. Unfortunately, the RSI and the PMO are not oversold and can accommodate more downside. The VIX did puncture the lower Band on our inverted scale and that does generally lead to a day or two of upside. In this case, we would expect, at best, churn and consolidation.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: Yesterday's comments still apply:
"New Lows are the highest we've seen since June/July. Making the comparison, currently New Lows are NOT oversold. The 10-DMA of the High-Low Differential is now accelerating lower."
Climax* Analysis: We got another climax day, and since it followed yesterday's downside initiation climax, we must designate it a downside exhaustion climax. The VIX punctured the lower Band on the inverted scale and that is generally followed by a rally day. Be that as it may, it probably doesn't mean the end of the decline.
*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.
%Stocks indicators are oversold, although June saw even lower readings. We must say that they are about to hit June lows so a relief rally could be in the cards. Of course the STOs don't agree with that conclusion. They're not that oversold and are declining in earnest.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
These are the indicators we want to watch closely. They've been quite prescient on market reversals. They unfortunately are still headed lower. %PMO BUY signals is very oversold.
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 bias remains bearish in all three timeframes.
Short term: We have a very low number of stocks above their 20/50-day EMAs. While the readings did tick up today, it wasn't enough to change the short-term bias.
Intermediate term: The SCI is at a low 35.6% which in and of itself is bearish, but we also see lower percentage of stocks above their 20/50-day EMAs. This implies that the SCI won't be able to move higher. A silver cross can only be generated if the 20-day EMA moves above the 50-day EMA. EMAs will move in the direction of price so price must be above both the 20/50-day EMAs in order to create a new silver cross.
Long term: The GCI is flat and reading only 37.0%. This means that over 2/3rds of the market is in the midst of a correction or bear market.
CONCLUSION: We noted in yesterday's DP Alert that today we would see volatility over the rate hike. We even mentioned a "relief rally" if it was 75 basis points v. 100 basis points. That happened, but the rally reversal was quick and painful. A downside exhaustion climax makes sense here. Despite ugly and declining indicators, the backdrop is oversold readings and a spike in the VIX. This is a recipe for a quick rally, but we do note that inverse ETFs are rising after hours. At best, we expect some consolidation or price reentering the falling wedge.
Erin is 20% exposed to the market.
Key Earnings Tomorrow: Costco (COST), FedEx (FDX), Accenture (ACN), Darden Ingredients (DRI) and Factset Research (FDS).
Click HERE for a complete Earnings list from Zacks.com.
Have you subscribed the DecisionPoint Diamonds yet? DP does the work for you by providing handpicked stocks/ETFs from exclusive DP scans! Add it with a discount! Contact email@example.com for more information!
Yesterday's comments still apply:
"Bitcoin continues to push against support at about $18,000. The OBV is actually showing a positive divergence with price lows which suggests a possible rally off this support level. However indicators don't see it the same way. There is a new PMO SELL signal accompanied by a negative RSI and falling Stochastics."
Rates are breaking out to new multi-year highs. Given the FOMC's steps to curb inflation with raising the Fed Funds Rate, the rest seem to be following suit. We expect a rising rate environment to continue.
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 dropped today so the bearish rising wedge is still in effect. At this point, support at the June top is holding. The RSI relieved overbought conditions and the PMO continues higher. With Stochastics also oscillating above 80, we would expect to see $TNX continue its march higher.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar rose and nearly busted out of the top of a bearish rising wedge. As we've remarked already, a bullish conclusion to a bearish chart pattern is especially bullish. The PMO is now rising and putting margin between it and the signal line. Stochastics are on the rise and should reach above 80 shortly. The Dollar is looking far more bullish today than even yesterday.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: GLD rallied even as the Dollar gapped up. This tells us there are more buyers of Gold. It hasn't helped the indicators yet, but Stochastics are starting to angle upward. GVZ is oscillating below its moving average on the inverted scale and that tells us there is still internal weakness.
GOLD Daily Chart: $GOLD wasn't up as much as GLD (there's a difference between an ETF and a continuous contract). This means Stochastics are still falling on $GOLD. Today's discount of -2.31% is number 20 on the list of discount readings since 2010. That's pretty incredible. Extreme bearishness generally leads to rallies, but it hasn't helped so far.
GOLD MINERS Golden and Silver Cross Indexes: GDX was up over 2.5% in early trading, but it pulled back and closed up only +0.34%. The chart hasn't changed much. We still believe that we will see a bounce off this support level, but participation really needs to perk up. Still we like the OBV confirmation (almost a positive divergence, but technically price bottoms are rising slightly). The PMO is on a BUY signal.
(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: Big bearish engulfing candlestick on USO today. Despite rather flat and negative indicators, support is holding. The volatility index for Oil shows oscillation above the moving average which implies internal strength. Price is technically in a falling wedge. Crude Oil is clearly at a "decision point". It needs to rally here to prove to us that we shouldn't worry about the current negative RSI and PMO SELL signal.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT rallied as the 20-year yield dropped today. It has recaptured support, but the declining trend is still intact. The PMO is starting to rise again as are Stochastics and the RSI. While this is all bullish, I think we can all agree that yields aren't done rising so downside pressure will remain on Bonds.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
(c) Copyright 2022 DecisionPoint.com
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 is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.