Today the Utilities Sector (XLU) 20-day EMA crossed up through the 50-day EMA (Silver Cross) generating an IT Trend Model BUY Signal. After reviewing the sector charts in this morning's DecisionPoint Trading Room, Utilities (XLU) looked the most favorable. We'll now talk about what is great about this chart, but just remember all of these pluses are overshadowed by a weak market and a bearish rising wedge.
A weak market generally works in XLU's favor, but the bear market has put every sector on the chopping block. Currently, the RSI is positive and the PMO is rising. Neither are overbought. The Silver Cross Index (SCI) looks especially bullish. It is rising strongly and isn't overbought. Notice we have robust participation of stocks above their 20/50/200-day EMAs. While %Stocks > 20/50-day EMAs are very overbought, those conditions can persist. Stochastics are above 80 and relative strength is on the rise. We like the sector, but that rising wedge gives us pause.
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: BUY as of 11/15/2022
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: Price action is very negative. We now have a price top that didn't challenge the top of the bearish rising wedge which suggests price will break down out of the pattern. A short-term bearish double-top is also trying to gel. A breakdown would be significant given multiple areas of support are available at the 20-day EMA, $390 level, 50-day EMA and rising bottoms trendline that forms the bottom of the rising wedge.
We've been waiting for a decline based on the VIX punctures above the upper Bollinger Band on the inverted scale.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: We didn't see much of an expansion on New Lows. As expected we did see fewer New Highs. Today the 10-DMA of the High-Low Differential topped bearishly.
Climax* Analysis: Today there were unanimous downside climax readings, giving us a downside initiation climax. SPX Total Volume was a little weak, but we believe that has more to do with holiday trading than lack of conviction.
*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.
STOs had been rising strongly, but they have now topped. This is a major attention flag. In one day we went from 81% of the SPY holding rising momentum to just 44%! On the bright side, overbought conditions are finally beginning to clear.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
IT indicators are falling now too. We may have 82% of stocks with PMO BUY signals, but we know with only 44% having rising PMOs, that number is going to get much worse and likely very quickly.
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 slightly BULLISH but deteriorating quickly as stocks begin to lose support at 20/50-day EMAs.
The intermediate-term bias is NEUTRAL to BEARISH. The SCI is still rising, but given the parity among %Stocks > 20/50-day EMAs and the SCI, it will be topping very soon. That will be when it slides into a BEARISH bias.
The long-term bias is NEUTRAL to BULLISH. Based on the rising GCI and higher percentages of stocks above their 50/200-day EMAs, we have to label the bias as at least partially bullish in the long term.
CONCLUSION: It was a heavy decline and one we have been expecting based on the VIX and overbought indicators. The indicators continue to deteriorate. In one day we lost nearly half of the rising momentum within in the index. Today's downside initiation climax suggests more to come with the STOs and ITBM/ITVM confirming with declines of their own. The bias is quickly deteriorating in the short and intermediate terms. As Erin noted this morning in the DecisionPoint Trading Room consider booking profits, you should at least consider tight stops, preferably "hard" and not "mental". Holding onto a loser is never a good idea. If it isn't performing or hasn't performed over the past two weeks, it isn't likely to as the market heads lower.
Erin pared back her exposure today from 35% to 10%.
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Bitcoin is in the process of forming a bearish descending triangle (flat bottom, declining tops). The PMO may look close to a crossover BUY signal, but the RSI and Stochastics are flashing "warning". Given the price pattern developing and bearish indicators, we're looking for at least a test of $15,500.
Yields were quiet today, moving mostly sideways.
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 looks very toppy. While it is currently holding support above 3.6%, the indicators are configured very negatively. We see a likely test of the intermediate-term rising trend.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar is holding support at $28.50 for UUP. Indicators are undecided right now. Given support is holding, we see a possible very short-term double-bottom shaping up. It's early and indicators aren't quite bullish yet, but we should prepare for a rally.
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: Gold has already lost the short-term rising trend. Support is near but indicators are softening. Stochastics are beginning to accelerate lower, the RSI is moving lower and the PMO has topped in overbought territory.
GOLD Daily Chart: $GOLD technically held its rising trend. The PMO hasn't quite topped on $GOLD either. Discounts increased suggesting traders are back to bearish extremes in sentiment. More than likely we will see Gold break down while the Dollar holds support.
GOLD MINERS Golden and Silver Cross Indexes: The ups and downs of Gold Miners gives us vertigo. Just as they break out and look very bullish, they stall. With Gold and the market both looking bearish, we doubt that Gold Miners will rebound as they did at the beginning of the month. The PMO has topped and participation is thinning quickly. A short-term double-top is already forming.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/21/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil rebounded after a rough start. This formed a bullish hollow red candlestick. Candlesticks aside, indicators are very negative so we would look for a test of the September low.
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With the 20-year yield correcting this month, TLT has been steadily rising. Unfortunately, it has formed a bearish rising wedge. Indicators are still bullish, but this rally is going to reach the apex of this wedge soon and the implications are a pullback. Support at $100 is near should the ride get bumpy. Until the PMO tops, we are bullish on 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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