We had a discussion today regarding Swenlin Trading Oscillator (STO) negative divergences that are being detected across the market. The good news is STOs are beginning to rise again, but we should exercise caution as this bear market rally may waning.
We'll look at the SPX STOs in the Short-Term Indicators section below.
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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: Price pulled back and it has landed once again within the bearish rising wedge. The PMO decelerated, but is still rising. This looks a lot like the early November top. A trip down to test the bottom of the wedge is a distinct possibility. We have a slight negative divergence on the OBV, but it has an opportunity to correct this if this doesn't turn out to be a major market top.
The RSI remains positive above net neutral (50) and the VIX remains above its moving average which suggests internal strength is still present. Stochastics also remain above 80 although they have topped.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: Yesterday's comments still apply:
"The short-term negative divergence persists on New Highs. We do not like that the 10-DMA of the High-Low Differential is declining again too."
Climax* Analysis: All but SPX Net A-D had climax readings today, so we have a downside initiation climax.
*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 turned back up today, but as we discussed in the opening, there is a negative divergence with price. We lost quite a few rising PMOs today. There is a negative divergence between %PMOs Rising and price tops.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERBOUGHT.
Despite the reversal on the STOs, both the ITBM and ITVM topped today. We note that while there are still quite a few PMO BUY signals out there, we have a negative divergence on that indicator.
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 have excellent participation of stocks above their 20/50-day EMAs.
The intermediate-term bias is BULLISH. We have a strong SCI reading and it is moving strongly higher. We do want to watch out if it begins to top out as it is going to reach overbought territory soon.
The long-term bias is Neutral to BULLISH. The GCI is rising, but the reading is still below 50%. There are a substantially higher participation of stocks above their 50/200-day EMAs than those with golden crosses. That leaves plenty of upside potential for the GCI."
CONCLUSION: We have STO negative divergences, ITBM and ITVM overbought and topping, and a downside initiation climax, so we think there is vulnerability for further downside price movement. We still detect internal strength based on the VIX and an RSI that is positive. Participation is strong enough, but the cracks beneath the surface as displayed by so many negative divergences has us moving to a more cautionary stance. Consider adding hard stops if you haven't already.
Erin is 55% exposed to the market.
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Yesterday's comments apply:
"It occurs to us that we may be looking at either a symmetrical triangle or pennant on a flag pole. Either way it is bearish. The bear flag suggests another leg down the size of the last breakdown. That is worst case. A symmetrical triangle implies a breakdown but doesn't tell us how far. For now, indicators have paused their declines, but if we don't see an upside breakout from the symmetrical triangle, Bitcoin could be in for a drop to at least $15,500."
Interest rates seem to be in pullback or correction mode. Likely this will continue until the next Fed announcement.
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 to break down today. Rates appear to be in corrective mode. The next support level is at 3.6%, but we are inclined to look for $TNX to drop 3.5%.
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar continued its decline. The next level of support arrives at the 200-day EMA. Given the falling and negative PMO as well as a negative RSI, it should easily reach that level. Strongest support lies at $28 for UUP. That seems a likely stopping point or possible reversal area.
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: Despite the Dollar falling, Gold fell. Typically a falling Dollar results in rising Gold prices. Not so today. The rally has been running hot and the relatively small decline in the Dollar wasn't enough to keep it going. A pause was needed.
GOLD Daily Chart: Discounts remain historically high despite the strong rally. This means that investors are still extremely bearish on Gold in spite of the rally. We believe that is good for Gold. Indicators remain very positive, but a pause is needed. With a resistance zone arriving, this is likely where we see some consolidation before the next upswing.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Right now price is essentially stuck below resistance at the 200-day EMA. On the other hand, price is holding support at the August top. Indicators are strong and while the SCI is trying to top, participation of stocks above their 20/50-day EMAs is robust. We expect this level of resistance to not be a problem. We are looking for a test of resistance at $34. Really, this is the best Gold Miners have looked since last year."
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/4/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO is clinging to support at the 200-day EMA. However, today saw a PMO crossover SELL signal and price is at the bottom of a bearish rising wedge. Stochastics are falling and the RSI just moved into negative territory. We don't expect USO to hold at this level. We would look for a drop to $67.50.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: We thought that TLT wouldn't get above resistance at the September low and 50-day EMA. With yields in correction mode TLT is enjoying a solid rally. The upside target of the double-bottom is about $102.50 and given the strength of this rally, it's likely to be hit. A resistance zone between $104 and $106 will likely sabotage the rally.
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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