Something we have been emphasizing in the DecisionPoint Trading Room TV Show and elsewhere is that long-term bond/yield trends have decisively broken long-term trends, and that we should expect the new trends to persist for years. In his latest free newsletter John Mauldin points out how this impacts the traditional 60/40 portfolio (and pension funds in particular). For the past 40 years a portfolio of 60% stocks and 40% bonds would weather market ups and downs fairly well because when stocks went down, bonds went up. Now we find bonds and stocks are both in decline, and portfolios are suffering.
We cannot be certain that these new trends will persist, but on a long-term chart that must be our first assumption.
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.
Weekly RRG® Chart: Yesterday's comments still apply:
"XLE remains the most bullish sector in the longer-term, but even it is beginning to see deterioration to its once bullish northeast heading. XLF will likely join all of the other sectors in the Lagging quadrant. There aren't any sectors showing improvement with certainly suggests the bear market is not over."
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: The long tail on yesterday's candlestick was never corrected, because the all-knowing, all-seeing quote machine in the sky shows (we assume) Friday's close as Monday's low. All quote systems everywhere carry this error, and we may be the only ones who think they're wrong, but that the way things are. Here is the 5-minute chart showing the gap up at Monday's open. Enough said.
There was strong upside follow-through at today's open. Prices backed off fairly quickly, but a clean breakout from the falling wedge was accomplished, and the market closed up over one percent. This is a bearish filled black candlestick and that implies bears 'won the day' on the intraday pullback. We don't believe it is dangerous at this point, more informational.
The daily PMO moved up through the signal line for a PMO BUY signal, and price broke the top of the falling wedge, as expected. The next obstacle is the less accelerated declining tops line drawn from the August price top. The VIX penetrated its 20-day SMA, and the Bollinger Bands are beginning to converge. The 'pinch' warns of higher volatility ahead and volatility isn't usually a friend.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Highs/New Lows were negligible, not revealing much. We'll need more rally to pull stocks to New Highs.
Climax* Analysis: Another day with climax readings across the board. Following yesterday's upside initiation climax, we got an upside exhaustion climax. SPX Total Volume confirms. This was a normal progression from initiation to exhaustion, so we'll be looking for more upside follow-through. Today's bearish filled black candlestick could have already been all the exhaustion necessary. Exhaustion can be followed by churn, which would be the most benign kind of pause prior to continuing higher.
*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.
Rising STOs and broader participation suggest more upside ahead. We do note that %PMOs rising is overbought, but it can remain that way. An example would be during the July/August rally where overbought conditions persisted.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
All indicators have positive divergences leading into this market bottom. We have 65% with PMO crossover BUY signals and that is enough to support more upside.
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 see increases in %Stocks > 20/50-day EMAs and both hold positive divergences with price.
The intermediate-term bias is still bearish but improving given the SCI is turning back up and should see a positive crossover the signal line soon.
The long-term bias is bearish but starting to improve. A rise in the GCI would help. We do have more stocks above their 50/200-day EMAs and those percentages are higher than the GCI, suggesting we will get the GCI rising soon.
CONCLUSION: Today the bullish falling wedge was confirmed with a breakout. Additionally, the SPX added a PMO crossover BUY signal. Participation is broadening as investors scoop up bargains. We aren't happy with today's filled black candlestick nor the upside exhaustion climax but with so many positive divergences and rising indicators, we don't think the result will be a pullback--worst case would be churn or consolidation.
Erin is 10% exposed with a 5% hedge. She will be expanding her exposure tomorrow. Jury duty prevented it from happening today.
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Yesterday's comments still apply:
"We have an almost textbook bearish descending triangle (flat bottoms, falling tops). This would suggest not only a trip to the bottom of this trading range, but a breakdown there as well. Stochastics and the PMO are rising, but not enthusiastically. The RSI tells us that price is right in the middle of its 2-week trading range so indicators are not as helpful as we would like. Intermediate term, the chart is bearish based on the chart pattern, but short term, is so-so (technical term) given indicators are not that bearish, but aren't that bullish either."
Rates continue in their rising trends but pulled back slightly for the most part. It's time for them to peak, but until rising trends are broken, we will look for them to rise further.
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's comments still apply:
"$TNX needs a solid breakout; if not, a bearish double-top will form. The PMO is on a crossover BUY signal, but it sure looks toppy. The RSI isn't overbought, but getting close. Stochastics are the most positive as they bottomed above 80. Overall, we do expect the breakout will occur, it may need another test of the rising bottoms trendline before that happens."
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The double-top is still in force. We will know much more when we see what UUP does with the short-term rising trend. Based on the PMO, we would expect to see a breakdown below the 20-day EMA and a test of the longer-term rising bottoms trendline. First up, however, is the 50-day EMA and early September top.
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 only resulted in a lower high today. Technically today's candlestick is also filled black, but we see it as more of a bullish hammer. $GVZ is above its moving average and that implies internal strength under the surface. The PMO did have a negative crossover generating a SELL signal and Stochastics are still falling, so overall, the picture is bearish, but a continuation of the rally is still a real possibility based on $GVZ and high discounts.
GOLD Daily Chart: Discounts spiked again suggesting investors are still very bearish on Gold. Sentiment is contrarian so based on sentiment, it is time for Gold to shine again. We just need those pesky indicators to turn back up.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners continued to rebound so we now have a bullish reverse head and shoulders pattern possibly in play. The PMO remains on a tenuous BUY signal. We aren't seeing that much expansion in participation, but the SCI has turned up above its signal line which is encouraging. A break above the 20-day EMA and broader participation would make it more appealing.
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 is back in the intermediate-term declining trend. Support is holding at $67.50. A bounce here would create a possible bullish reverse head and shoulders. We don't think that outcome will occur mainly because the PMO has topped beneath the zero line. Let's not forget the RSI is falling in negative territory below net neutral (50) and Stochastics just entered negative territory.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Bonds rallied as most yields fell today. We have a textbook bullish hammer candlestick which suggests higher prices again tomorrow. Stochastics are rising somewhat and the PMO wants to bottom. However, it doesn't make the picture look bullish given the overriding declining price trend.
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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