Today the Industrial Sector (XLI) 50-day EMA crossed up through the 200-day EMA (Golden Cross), generating an LT Trend Model BUY signal. While this is an encouraging event, we note that most indicators on the chart below are overbought -- specifically, the PMO, Silver Cross Index, and Percent Stocks Above 20/50/200EMAs. Note that overbought conditions can persist should the rally continue. However we must consider that in a bull market, overbought conditions do not necessarily imply a rally's end, but in a bear market it is most likely that we will see a price top soon. That said, we have marked a double-bottom, roughly July and October, with the confirmation line drawn across the August top. Price has eased above that line, implying a continued bullish outcome.
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.
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 from the October low has advanced over +15%. We believe we are still in a bear market so the rally could get stale quickly. We have yet another VIX puncture of the upper Bollinger Band on the inverted scale and that generally leads to a day or two of decline. That didn't happen today so it is likely overdue.
The PMO is still rising but reaching very overbought territory as it begins to accelerate higher. The RSI is positive and fortunately isn't overbought. Stochastics are oscillating above 80 which implies internal strength.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Highs pulled back slightly so the negative divergence in the intermediate term is still open.
Climax* Analysis: There was some climax activity, but it was weak (just the SPX UP/DOWN Volume Ratio), so we are going to overlook it because SPX Total Volume was only 70% of the one-year daily average. Holiday trading is likely the culprit for the low volume, but nonetheless it still needs to confirm the climactic readings and it isn't.
*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.
STOs popped higher confirming the current rally, but as with New Lows an intermediate-term negative divergence is still in play. %PMOs Rising is healthy, but getting overbought again. %Stocks above their 20-day is definitely overbought.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM and ITVM both moved higher, but are overbought. A negative divergence in the intermediate term is still in play on %PMO BUY signals.
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 still have broad participation of stocks above their 20/50-day EMAs.
The intermediate-term bias is BULLISH as the SCI is above 50% and rising. We worry that it is getting overbought.
The long-term bias is BULLISH given the rising GCI and higher percentage of stocks above their 50/200-day EMAs.
CONCLUSION: Yesterday's upside initiation climax was on point as we saw follow-through on yesterday's rally. Both short-term and intermediate-term indicators are rising strongly, but are overbought. Participation is robust but also overbought, particularly in a bear market environment. We believe the rally will continue, but it is getting stale under the bearish market environment. We could see Santa Claus in a rally continuation, but we would be extra cautious through the end of the year. The setup reminds us of the end of 2021 and we know how the bear market began in earnest in January 2022. Enjoy the current ride, but realize the market is extremely vulnerable to a decline, particularly at the start of 2023 (or much sooner).
Erin is 35% exposed.
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Bitcoin is attempting a reversal off strong support on this month's low and the now magical $15,500 level. This appears a good place for it to retest overhead resistance, but indicators are still soft given the negative RSI and low Stochastics reading. Stochastics have bottomed and the PMO has decelerated, we just don't see a breakout above $17,500 due to the precarious environment surrounding crypto overall.
Yields are resuming their decline with most in declining trends. We believe this is temporary, at least until the next FOMC meeting.
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 is holding support and should it move lower more support is available. Indicators are very bearish so at best we see sideways movement. A more hefty decline isn't out of the question given the bearish indicators.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar failed to recapture the intermediate-term rising trend and is now back in a serious decline. Indicators that had been looking up are now back to declining. The next support level is the 200-day EMA, but we see a move to $28 as a real possibility.
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: A continued decline in the Dollar helped Gold hold support and begin a new rising trend.
GOLD Daily Chart: Stochastics are quite negative and the PMO is flat. The RSI is positive, rising and far from overbought which is good news. Gold sentiment measured by the Discount on PHYS popped higher, back into historically high readings. This is positive for Gold given sentiment is contrarian. The higher the discount the better it is for Gold.
GOLD MINERS Golden and Silver Cross Indexes: GDX was a "Diamond in the Rough" today in DecisionPoint Diamonds so we will give you Erin's analysis straight from today's report:
VanEck Vectors Gold Miners ETF (GDX)
GDX tracks a market-cap-weighted index of global gold-mining firms. Click HERE for more information.
Predefined Scans Triggered: Stocks in a New Uptrend (Aroon), Moved Above Upper Price Channel and P&F Double Top Breakout.
GDX is up +0.07% in after hours trading. I know this was a recent "Diamond in the Rough", but you'll find that we will end up with repeats over time on ETF Day simply because there is a smaller universe. We have "under the hood" indicators on GDX so we know far more about the participation in this ETF. It is outstanding! Even the Golden Cross Index (GCI) is picking up speed. Today's small breakout and close above the 200-day EMA suggests follow-through ahead. Stochastics are also oscillating above 80 alongside a positive/rising RSI. The PMO is accelerating. The stop is set at 7.8% or $26.47.
There is still a declining trend showing overall and the weekly PMO hasn't quite confirmed on an intermediate-term investment. The SCTR is excellent at 89.8% meaning it has internal strength as far as trend and condition in all three timeframes.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/21/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO failed to follow-through on this week's rally and instead quickly fell to support at the early September low. We expected this and said as much yesterday given only Stochastics were rising and the $OVX only closed above its moving average, not oscillated above it. Now those few bullish indicators have reversed. Stochastics turned down well into negative territory and the $OVX dropped well below the moving average. On the bright side, when the $OVX drops below the lower Bollinger Band on our inverted scale that typically leads into a rally. Still, we don't think USO will hold this current support level. A trip to the September low seems most likely.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With 20-year yield in decline, TLT has made a comeback. We didn't expect the rally to see a strong continuation, but indicators were telling us we should have. At this point with a positive RSI, rising PMO and Stochastics hovering above 80, we could see this rally continue to at least the June low. As noted in the yields section, we believe the FOMC meeting will get interest rates rising again. That will then be the end of the rally in Bonds.
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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