We only have two days of rally marking the current price bottom, but many of the indicators are beginning to suggest that this is the beginning of a more lasting rally in the major indexes. The rally is broad. In the chart below we only show the SP500, NASDAQ and NYSE, but you should know that the SCI has also bottomed on SP400, SP600 and Nasdaq 100 ($NDX).
The Silver Cross Index (SCI) measures how many stocks have their 20-day EMA above their 50-day EMA. In order to have a crossover like this, price must be above both the 20/50-day EMAs. This tells us that not only is participation expanding with stocks above their 20/50-day EMAs, we also now have stocks settling in with IT Trend Model "Silver Cross" BUY signals. This is highly encouraging especially given these bottoms are in extremely oversold territory.
The DecisionPoint Alert Weekly Wrap presents an end-of-week assessment of the trend and condition of the Stock Market, the U.S. Dollar, Gold, Crude Oil, and Bonds. The DecisionPoint Alert daily report (Monday through Thursday) is abbreviated and gives updates on the Weekly Wrap assessments.
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MAJOR MARKET INDEXES
Each S&P 500 Index component stock is assigned to one of 11 major sectors. This is a snapshot of the Intermediate-Term (Silver Cross) and Long-Term (Golden Cross) Trend Model signal status for those sectors.
RRG® Charts ($ONE Benchmark)
Daily: We continue to see improvement on the short-term RRG; we can actually see the Improving quadrant now.
The most bullish is clearly XLK which not only has a bullish northeast heading, but is the only one in the Improving quadrant.
Not far behind XLK are the sectors with bullish northeast headings: XLC, XLI, XLB, XLE and XLV.
XLP, XLF, XLU, XLRE, XLP and XLY have northward components and are angling up toward the Improving quadrant.
Weekly: Rather than improving, the weekly RRG is still reflecting the internal weakness of the market. All sectors with the exception of XLE have strong bearish southwest headings. XLE is moving further into the Leading quadrant as Energy industry groups begin to surge.
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: Today saw a broad rally with every sector up over 1.5% with the leading being Energy (XLE) which was up a whopping 4.3%. Price didn't close above the 20-day EMA, but given the voracity of the rally, that is easily forgiven.
We are finally seeing a bullish response from the indicators as the PMO has turned up, the RSI is inching closer to positive territory above net neutral (50) and Stochastics moving vertically out of oversold territory. The VIX remains below its moving average on our inverted scale suggesting internal weakness, but it is likely to overcome its SMA easily if the rally continues.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Lows were barely visible at -1.00. On the flip side we aren't seeing New Highs, but given the beatdown nature of this market, we probably won't for little while longer.
Climax* Analysis: Yesterday we had an upside initiation climax, and today really strong climax readings gave us an upside exhaustion climax. SPX Total Volume was strong, but we don't think we would classify it as blowoff volume. While by our rules we have no other choice but to call it an exhaustion climax, we don't think the up move is actually exhausted yet. Today's SPX UP/DOWN Volume Ratio is the second highest in the last 15 years. The highest was registered at the end of 2018 as the market rallied out of that year's correction.
*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 continue higher and are only in neutral territory. These are the first positive readings since early September. They can certainly accommodate plenty of rally. With 91% of stocks holding rising momentum, participation is broad.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is EXTREMELY OVERSOLD.
The ITBM/ITVM continue to confirm this price bottom as they continue to rise. They are extremely oversold and can definitely expand should the rally shift into the intermediate term.
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 now bullish. We have a large number of stocks above their 20/50-day EMAs and those percentages are far higher than the SCI.
The intermediate-term bias is still bearish. The SCI may've turned up but the percentage is still bearishly low.
The long-term bias is bearish. The GCI continues lower. Given %Stocks > 200-day EMA is less than the GCI percentage, we can't expect the GCI to bottom in a meaningful way.
CONCLUSION: Investors are hungry for an extended rally and it looks like we are going to get a continuation. Given primary indicators (PMO, Stochastics and RSI) are rising bullishly and our STOs/ITBM/ITVM are confirming with their own rise out of deeply oversold territory, we would look for follow-through on this rally. Tomorrow could surprise given today's upside exhaustion climax, but other indicators just look too good to expect a longer-term decline.
Erin is 15% exposed.
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Bitcoin is now testing overhead resistance at $20,500 and the 50-day EMA. Indicators are finally cooperating with a now positive RSI, rising PMO and rising Stochastics bottoming above net neutral (50). We still don't completely trust this rally, but we will know far more when we see what price does with this area of overhead resistance.
A lot is being made on the business shows about yields pulling back. Yields got a little ahead of themselves momentarily, but we don't expect the pullback to last long. The 10-Year Bond Yield chart (just below the next one) shows that the excess has been relieved, and solid horizontal support is just ahead.
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
As already noted, true support at 3.5% is nearby. Despite the decline, the 20-day EMA is still holding as support. The PMO and Stochastics look terrible, but the RSI remains positive and a strong upside reversal could result in a PMO bottom above the signal line which is especially bullish. This has a very flag-ish look that suggests $TNX will march relentlessly higher. As we said yesterday, we'll know a lot more when we see what $TNX does with this upcoming support level.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar tanked today losing support at the 20-day EMA. The RSI has now dipped into negative territory and the PMO triggered a crossover SELL signal today. Stochastics continue to dive lower. It's not looking good for the Dollar, but on the bright side, the rising trend is intact and the next level of support isn't that far away at the 50-day EMA and July/August tops.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: Gold is enjoying quite a rally as the Dollar loses strength. Yesterday, the 20-day EMA was overcome as well as resistance at the July low. Today it managed to leap above the 50-day EMA. The RSI is positive and the PMO is on an oversold BUY signal. Stochastics are rising strongly and should get above 80 soon.
GOLD Daily Chart: Discounts are contracting as investors become less bearish on the yellow metal. It appears that the extreme bearish sentiment measured by historically high discounts last week is playing out. Gold looks very enticing right now.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are on their way back up after taking a beating since the top in April. This is the best they have looked since April. Indicators are confirming and participation has broadened enough to move the SCI higher. We even have a few above their 200-day EMAs now! Stochastics moved above 80, the RSI is positive and the PMO is rising after an oversold crossover 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: USO continues to rally strongly, part of the reason why XLE is taking off as well. The 50/200-day EMAs are the next test for this rally. This rally has now pushed the RSI into positive territory. Today the PMO had a crossover BUY signal. Stochastics are back in positive territory. The $OVX is still reading very high, especially considering this rally. As with the VIX, a puncture of the lower Bollinger Band is very bullish.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Despite a pullback in the 20-year yield, TLT dropped today. That's a very bad sign. If the rally in equities continues, bonds will not be the investment vehicle of choice. Of course, it hasn't been a good choice all year. The RSI is negative, Stochastics are flat and the PMO is attempting to top beneath the signal line. A PMO top beneath the signal line is especially bearish.
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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