We've decided not to include the daily Relative Rotation Graphs (RRGs) except when they tell a story and we believe they are.
Below are the RRG with a $ONE benchmark (absolute performance) and the RRG with the SPY as the benchmark (relative performance). $ONE gives us absolute performance; it compares the sectors to a data point of "1" rather than the price point of the SPY.
Let's start with the $ONE benchmark below. All of the sectors now have a bullish northeast heading with nearly half of the sectors in the Leading quadrant and the others in the optimistic Improving quadrant. Those in the Leading quadrant have a bullish bias as they are on the right side of the graph. Those in the Improving quadrant have a neutral to bearish bias. They aren't 'bullish' because they are on the left side of the RRG; there is still some internal weakness visible. Still, this RRG is very encouraging given those bullish northeast headings and no sectors in the Lagging or Weakening quadrants.
The RRG with the SPY as the benchmark is all over the place. Rotation on this chart is dizzying given the swiftly changing headings and locations. They are subject to the volatility of the SPY. Right now, underperforming the SPY is a bad thing. The SPY's weakness makes this chart less informative.
However, this RRG also tells a story. Notice that so many sectors are revolving closely toward the center of the graph. The center is the SPY. The closer the sector is to the center, the closer it is to performing exactly as the SPY is. The RRG below tells us essentially more than half of the sectors are performing as well as the SPY. That's a good thing during a bear market rally as we are enjoying now.
Those sectors on the right hand of the chart have a bullish bias, but they have headings moving southeast. This tells us internal strength is fading.
Conclusion: Daily RRGs move swiftly. Comparing the sectors to the SPY, while enlightening, does not hold the same weight as a $ONE benchmark in our opinion. Looking at absolute performance ($ONE) we see the bear market rally is broad. Looking at relative performance to the SPY in a bear market is misleading. A sector could be outperforming the SPY, but still see absolute performance failing.
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:
"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: The rally continued in earnest today. Overhead resistance was blown away at the prior October high and the 50-day EMA. The next level of resistance lies at about $390.
The VIX very nearly punctured the upper Bollinger Band on our inverted scale. When that happens, we should expect a pause. The RSI is rising, not overbought and positive above net neutral (50). The PMO is accelerating its rise and is definitely not overbought. Stochastics are now above 80. We don't consider Stochastics and overbought/oversold indicator, it shows internal strength and weakness. So a reading above 80 is a very good thing.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: Today New Highs should have expanded well past the levels hit since May, but they contracted instead. This is a bad sign for the short-term. Take a moment to reflect on this indicator. It shows 52-Week New Highs and Lows. The New Highs registered back at the end of 2021 and the beginning of 2022 will be dropping out of the equation soon (after 52 weeks). This will make it easier for stocks to make new highs. For now, stocks registering new highs are bucking considerable headwinds, having to beat those highs back when the market was close to all-time highs.
Climax* Analysis: We got another upside exhaustion climax today. SPX Total Volume expanded as well, but not to levels indicating a blowoff. Climax days are p0tentially exhaustion events, except at certain price turning points. We need to be alert for churn, but we'll take our queue from how the market opens tomorrow.
*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 OVERBOUGHT.
We can now say that all of these indicators are overbought. Just remember overbought conditions can persist, especially when the market is rising strongly as it did in July and halfway through August. However, it is something to consider as the market will need an opportunity to digest the last three days of rally.
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 overbought. All are rising which is bullish; however, we note that unlike the %PMOs Rising in the prior chart, it doesn't usually stay overbought for very long.
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.
Yesterday's comments still apply:
"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: It occurred to us today that since the bottom, price has risen over 10% on the SPY. We see $390 as the sticking point. The VIX has almost punctured the upper Bollinger Band, New Highs pulled back slightly and we had another upside exhaustion climax. A period of digestion seems imminent, but we would see it as a pause in the action. Overall the bias is bullish or improving in all three timeframes and our primary indicators are rising and showing strength. A giant pullback doesn't seem as likely as churn or digestion.
Erin 40% exposed with a 2.5% hedge.
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Today saw a breakout from the declining trend. We've been worried about seeing a "drift" through that declining trendline, but today saw a solid rally. Price is now testing the upper part of the trading range it's been in for over a month. If we see a failure to overcome this support, we would likely see a test of the bottom of the range.
Yields pulled back significantly today in the longer term, but rising trends are still intact.
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
Yields have once again gotten too far away from the trend line and are correcting back to it. Eventually, they will need a more profound correction, but we don't know if that time has arrived.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP broke its short-term rising trend line and is now about to test the early October low. We view this as the confirmation line of an Adam and Eve double-top. The minimum downside expectation of the pattern would be around $28.50. That would mean a break of the intermediate-term rising trend. Indicators are very negative so that definitely isn't out of the realm of possibility.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: The double-bottom is coming together, but remember it isn't really a double-bottom until price gets above the confirmation line at $161.25. That means plenty of work ahead for Gold. It's been slow going and other than Stochastics, indicators aren't revealing much.
GOLD Daily Chart: $GVZ remains above it moving average on the inverted scale indicating strength, but the Bands have definitely contracted. This is a precursor to new volatility. Our hope would be volatility to the upside, but Gold is so recalcitrant. Discounts remain at historic levels, making the ground fertile for a rally continuation.
GOLD MINERS Golden and Silver Cross Indexes: Miners are in the process of forming a bullish reverse head and shoulders, but first it must overcome the 50-day EMA. Participation has broadened and the SCI is rising again. This is a solid setup, but we would like to see confirmation with a breakout above the 50-day EMA alongside a PMO that is above the zero line. Until then, be careful.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:
"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."
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The departure of TLT from its falling trend line would be described as 'parabolic' if it were instead an up trend. At present, it seems to be correcting back to the line of overhead resistance at $100 and the declining trendline.
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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