The rally resumed today with broad participation. Five of the 11 sectors were up over 1% with only two finishing lower (Real Estate (XLRE) and Utilities (XLU)). The 5-minute bar chart shows an expected breakout from a bullish ascending triangle. Unfortunately, the breakout failed and price came down to test support at the 50-period EMA. The quick reversal and close on support at the earlier highs of the day looks good, particularly given the RSI just moved above net neutral (50) and the PMO and Stochastics decelerated in oversold territory. We would have preferred that price had continued to follow-through to finish the day, but this looks like a textbook pullback to the prior breakout point.
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
SECTORS
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.
Weekly RRG® Chart: The weekly $ONE RRG is still very bearish. All but two sectors have bearish southwest heading with all except XLE in the very bearish Lagging quadrant. XLY did make a turn northward toward the Improving quadrant. We'll see if XLY can make headway. XLE continues to impress as it maintains its bullish northeast heading while inside 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: SELL as of 9/8/2022
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: Today's rally put price above the intermediate-term declining trendline, essentially breaking that negative bias. We see a bullish reverse head and shoulders pattern. The pattern was confirmed as it broke above the downward sloping neckline. The minimum upside target of the pattern would bring price to about $410 or overhead resistance at the September high.
The next areas of overhead resistance to watch are the 50-day EMA and early September low. Given the look of the PMO, RSI and Stochastics, we would expect that to be no problem for the SPY. The VIX remains in positive territory above its moving average on our inverted scale suggesting internal strength.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: We're finally seeing a more significant number of New Highs. This has been overbought territory for New Highs this summer so we are still on guard.
Climax* Analysis: We got climax readings today on all indicators but the NYSE UP/DOWN Volume Ratio, which suggests that that the action was centered in the large-cap area. Still we have to call an upside exhaustion climax.
*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 SOMEWHAT OVERBOUGHT.
All of our short-term indicators are confirming the rally, but they are getting a touch overbought, particularly the %PMOs Rising. However, before we start worrying, note that indicator can stay overbought for long periods--just look at July and August.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
The ITBM/ITVM are still somewhat oversold, but %PMO BUY Signals is getting overbought. All are rising which is bullish.
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. We're seeing an expansion in participation of Stocks > 20/50-day EMAs and those readings are much higher than the SCI.
The intermediate-term bias is moving bullish. The SCI is rising strongly after a positive crossover last week. We'd call it bullish, but we would like to see a higher reading on the SCI.
The long-term bias is bearish but improving. The GCI isn't quite rising yet, but we do finally see some higher percentages on %Stocks > 50/200-day EMAs and those are higher than the GCI.
CONCLUSION: The rally saw broad follow-through on Friday's pop above the 20-day EMA. The SPY's declining trend has been broken and indicators are solid across the board. We have noted previously that we should expect chop and churn on the way up. A pause tomorrow based on the upside exhaustion climax would make sense. The bias is very bullish in the short term so we don't expect a huge decline. Based on the reverse head and shoulders pattern, our upside target for this short-term rally is $410 for the SPY. It may take some time to get there as we churn, but the FOMO or "Fear of Missing Out" will provide fuel for this bear market rally--it already seems to be.
Erin 40% exposed with a 2.5% hedge.
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BITCOIN
We talked last week about Bitcoin breaking through the declining trendline. It hasn't happened yet and if it does with price moving slowly sideways, we would NOT consider it a vote of confidence. The trading range for Bitcoin tells us we could see a test of $20,500. Stochastics seem to think that is possible. The PMO and RSI are useless as they travel sideways in neutral territory. We expect more of the same from Bitcoin, sideways movement.
INTEREST RATES
Yields are maintaining their rising trends. We expect them to move even higher.
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
While we expect rates to continue higher, a bearish parabola is forming. Last time we saw a pullback toward support at the June high. The RSI is overbought and while Stochastics are above 80, they did start moving lower. The PMO tells us to expect the short-term rising trend drawn from the August low to hold. If this parabola breaks down, we wouldn't expect that rising trend to be broken. $TNX has stayed true to its 20-day EMA.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: We have a "long in the tooth" symmetrical triangle pattern on the Dollar. With price so near the apex of the triangle, a "break" will occur simply with sideways price action. Today's trading that formed a bearish filled black candlestick, suggests price will break down from the pattern rather than break out. The RSI is holding up above 50, but the other indicators are bearish--another reason to expect a breakdown.
GOLD
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: A double-bottom is forming on GLD and $GOLD. The pattern will not be confirmed until we see a breakout above the confirmation line at the October top. The RSI is certainly not encouraging, but Stochastics and the PMO leave us optimistic. $GVZ is maintaining above its moving average on the inverted scale which indicates internal strength.
GOLD Daily Chart: Discounts remain at historic levels, making the ground fertile for a rally continuation.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners underperformed both Gold and the market. We still see a possible reverse head and shoulders in the making and with Gold poised to move higher, we believe this group will benefit. Participation is healthy with 69% above their 20-day EMA and 45% above their 50-day EMA. We also like that Stochastics are rising strongly out of oversold territory.
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 is trying to break higher, but continues to be confounded by the key moving averages. Stochastics are not encouraging as they fall and the PMO and RSI aren't revealing anything as they move sideways. Given $OVX remains above its moving average on the inverted scale, we know there is strength somewhere under the surface.
BONDS (TLT)
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The decimation of Bonds continue and we really don't see any end in sight. The RSI is oversold which is positive; however, the PMO, OBV and Stochastics are still very bearish. Look out below!
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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