Question: On 10/17/22 Carl showed us an excellent 30YrBondPrice and 30YrBondRates chart. Is there a book or a few articles that you can reference that will help me understand why the ‘Bond Bull Market' is over and what implications that has for other categories such as Stocks, Commodities, and Currencies. Fundamentally, I might be missing something in my thinking process and perhaps you can help me fill in the blanks. I am willing to do the reading, perhaps you can provide a few references.
Carl's Answer: I don't have suggested reading for you, but I have learned from 40 years of looking at charts that what goes up must come down, and vice versa. We have had four decades of inflation (including rising bond prices) caused in large part by the Fed's thumb being on the scale. Reason demands that the excess be corrected by a regression to the mean. Looking at the chart, the mean will be found somewhere in the middle of the long upward trend of bond prices, but it is most likely that the correction will overshoot the mean by a bunch (because that's what they usually do), possibly bringing bond prices back down to where they were in the 1980s.
Stocks? Well, you know where I think they are headed -- a decline of -50% or more from the top.
Commodities? I don't pay a lot of attention to them, and I honestly don't have a good feel for them in a cross market sense. I think gold will go up.
Currencies? We're good in this area. The U.S. has been a leader in protecting to soundness of our currency. Oh, wait. That was in my dreams. Currencies? God help us.
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.
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 in the intermediate term."
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: We are still in a period of churn. Today's pullback wasn't concerning. The market moved up +8% from last week's low to Tuesday's high, and it has pulled back a mere -3%.
The indicators are somewhat mixed with the RSI in negative territory and falling. The PMO is still rising, but Stochastics ticked slightly lower. All of this makes sense given the pullback toward the prior short-term declining trendline. The VIX is nearing the top Bollinger Band on our inverted scale. We'd prefer it not puncture the upper Band, but with the Bands squeezed as they are, we could see punctures on either side. Typically a puncture of the upper Band brings lower prices for a day or two, while punctures of the bottom Band usually lead to some upside price movement. At this point we aren't putting too much weight on the location of the VIX.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Lows expanded again, but are nowhere near the high levels we saw last week.
Climax* Analysis: There were no climaxes today.
*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 NEUTRAL.
STOs did turn down which could mean churn will be here for a few days more. They are in neutral territory and not overbought so the downturn is a bit more benign than usual. Rising momentum has taken a hit, but with 62% of the SPX with rising momentum, the market can see more upside or prevent a major decline.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
IT indicators are all still rising. We really didn't lose PMO BUY signals so these indicators also imply internal strength is there.
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 still bullish in spite of price deterioration these past two days. The loss of stocks above their 20/50-day EMAs isn't a good look, but overall we still have more stocks above those EMAs than stocks with Silver Crosses. This implies the SCI will turn back up shortly.
The intermediate-term bias is still bearish but improving given the SCI is above the signal line.
The long-term bias is bearish. We have a lower percentage of stocks above their 50/200-day EMAs v. the GCI percentage.
CONCLUSION: The pullback from Tuesday's high is well within tolerance for the few days of consolidation we were expecting. All the reasons for being bullish -- 6-Month Seasonality, sentiment, oversold market condition, numerous positive divergences -- are still intact. To be clear, we do not think the bear market is over, but there are solid reasons for us to expect a solid rally.
Calendar: Tomorrow is the last trading day before options expiration this month. Expect low volatility.
Erin mistyped her exposure level yesterday at 15%, it was 20%. Today she has 35% exposure with a 2.5% hedge.
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Yesterday's comments still appy:
"Bitcoin is still range bound. There is a high likelihood that price will simply "drift" above the declining tops trendline. We wouldn't make too much of a move like that given the RSI is falling and Stochastics have topped. Expect more sideways action with a gentle declining trend."
Rates continued higher today which continues to put pressure on Bonds.
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 continued its breakout higher. Higher rates are certainly putting the pressure on stocks as well as Bonds. When/if they do peak, the market will likely fly higher. For now the rally is on. Certainly $TNX is overbought based on the RSI, but the PMO is rising again and Stochastics are very strong. We don't see relief ahead yet.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Yesterday's comments still apply:
"The bearish double-top pattern on the Dollar was likely busted. We now have a symmetrical triangle. These are continuation patterns, meaning the prior trend determines where the breakout/breakdown will occur. In this case given the short- and intermediate-term rising trendlines, the expectation is a breakout not a breakdown. The PMO isn't on board with this yet, but the RSI and Stochastics seem to be as they remain above net neutral (50)."
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: Gold is clinging to support. If we're going to see a reversal, now is the time. Unfortunately indicators are still very negative with the RSI lingering in negative territory below net neutral (50) and the PMO moving lower after topping well beneath the zero line. Stochastics will likely be our first notice of a possible reversal ahead, but so far they just keep moving lower.
GOLD Daily Chart: Yesterday's comments still apply:
"Discounts saw another rise at historic levels. Note that before the last rally out of September lows, sentiment was at the same extreme levels it is now. Big difference is we had a PMO rising as well. This time around the PMO just triggered a SELL signal. We can't count on bearish sentiment to bail Gold out without positive momentum going along for the ride."
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners reversed today, but no real headway occurred in participation. The PMO triggered a crossover SELL signal as well. The RSI is negative and despite the rally, Stochastics also continue lower. More than likely GDX will have to test the September low before we see a meaningful reversal.
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 broke out from the short-term declining tops trendline. We did see a bearish filled black candlestick, but price still stayed out of the declining trend. The PMO is attempting to turn back up. Stochastics turning up would be excellent confirmation on any rally, so far not so good.
IT Trend Model: SELL as of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The pop in the 20-year yield put extensive downside pressure on TLT. Carl's open today tells us this will be the norm for quite some time.
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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