Editor's Note: In case you missed it, we are leading with the article that Carl published this morning.
This morning on the Fox Business Channel someone made a point to mention how extreme the Put/Call Ratio has gotten. Typically I don't pay a lot of attention to this indicator because it is hard to interpret, but when I looked at it this morning, it certainly provided a wake-up call. Our primary interest is in the CBOE Put/Call Ratio, but I have also included the Equity Put/Call Ratio because it is so far out of its normal range. To calculate the Put/Call Ratio, divide the number of puts by the number of calls. High readings indicate excessive bearishness, and the current readings are the highest ever. We can see on this chart that in the last five years prior high readings have occurred at important market bottoms.
Historically, stand-out Ratio spikes tend to occur at significant price lows. Some exceptions below are: (1) the end of the 1994 consolidation, and (2) the extreme ratio reading in 2007 near the bull market top. Also, the Equity Put/Call Ratio has been at extreme highs for over two months. How and when is one supposed to act on that?
Conclusion: Current high Put/Call Ratio readings reflect extremely high bearish sentiment. Such extremes typically identify major price lows, and it would pay the bears to stay alert to their increased vulnerability; however, this indicator is not infallible or precise. Be careful regardless of your inclinations.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
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 12/28/2022
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: Today's rally was excellent; however, notice that all price really has done is consolidate sideways on support. It's great that support is holding. The confirmation of the bullish falling wedge is lukewarm given the sideways price movement.
The rally did get the RSI to point up, but it remains in negative territory. The PMO is in negative territory and falling and Stochastics are still below 20, both imply internal weakness. The VIX isn't enlightening as it sits in the middle of the Bollinger Bands.
Here is the latest recording. No recording on 12/26:
S&P 500 New 52-Week Highs/Lows: The 10-DMA of the High-Low Differential continued lower today in negative territory.
Climax* Analysis: We had unanimous upside climaxes today, following yesterday's downside exhaustion climax. For today it's an upside initiation climax. SPX Total Volume was still holiday light.
*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 DOWN and the condition is NEUTRAL.
STOs were mixed. The STO-B continued lower, but the STO-V continued rising. We now have over 1/3rd of the SPY holding rising momentum which is encouraging. We also have nearly half above their 20-day EMA. There were positive divergences leading into this consolidation and that suggests an upside reversal.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
We saw nice confirmation from IT indicators today. Both the ITBM/ITVM reversed and moved slightly higher. The %PMO BUY signals is still anemic.
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 BEARISH. We have lower percentages of stocks above their 20/50-day EMAs than the SCI percentage.
The intermediate-term bias is BEARISH. The SCI is falling after a negative crossover in overbought territory.
The long-term bias is Neutral to Bearish. The GCI is rising and we now have more stocks above their 50/200-day EMAs than those with golden crosses (50-day EMA > 200-day EMA). That means GCI could continue higher.
CONCLUSION: Yesterday's downside exhaustion climax played out as it should with a rally. The rally was strong enough to log an upside initiation climax that would suggest follow-through. With IT indicators reversing higher and positive divergences on short-term indicators (which are beginning to reverse higher), this could be a turning point. The put/call ratios also suggest a rally ahead. Today's rally was attributed to the jobs report and with volume so low, we don't want to get overly bullish, but we are encouraged. Keep stops in play in case support is lost and consider keeping your exposure low until we get out of the holiday trading zone.
Erin is 12% exposed with a 2% hedge.
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Bitcoin saw a new PMO SELL signal today. Currently December support is holding, but with a negative RSI and falling Stochastics, it isn't likely to last.
Yields are back on the rise and we believe they will test prior highs if they aren't already.
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
After breaking through the declining tops trendline, $TNX fell back into the declining trend. Indicators are still very positive. The RSI is above net neutral (50) and the PMO is about to hit positive territory on an oversold BUY signal. Stochastics are confirming internal strength as they remain above 80.
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar is attempting to break from the bullish falling wedge, but hasn't done so convincingly yet. Yesterday looked very encouraging on the breakout, but it fell back within the wedge today. Indicators are still soft. The RSI is negative. Stochastics have topped but are in positive territory. The PMO is holding onto its oversold crossover BUY signal. The expectation here is a breakout, but UUP still has some work to do.
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: With the Dollar falling -0.61%, Gold managed a rally of +0.56%. The reverse correlation was on the money today. Gold should be breaking down, but it is not. The PMO is trying to reverse and join the bullish RSI and Stochastics.
GOLD Daily Chart: At the time of publishing today, we didn't get new readings on the discount/premium for PHYS. Overall discounts are paring back suggesting traders are less bearish on the metal, but readings are still high so we believe that could work in Gold's favor. We'd like to see $GVZ get back above its moving average on the inverted log scale. As it stands now, Gold is exhibiting internal weakness.
GOLD MINERS Golden and Silver Cross Indexes: Gold's rally helped Gold Miners today. We would've expected them to perform better given the strong rally in the market. Participation is still fairly strong, but we note the SCI has had a negative crossover and even with the rally, we didn't really see an expansion in stocks above their 20/50-day EMAs. This seems about as how as GDX will go right now. If we are fortunate, it will hold above the 200-day EMA and continue consolidating.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/21/2022
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil continued its decline, but did form a bullish hollow red candlestick. This means that while price closed lower, it closed above the open. The rising bottoms trendline is still holding up and the 20-day EMA is holding as support. The RSI is still positive and Stochastics are above 80. Most importantly, the PMO is still rising. We like Crude, but if the rising trend is lost, we will reevaluate that stance.
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The 20-year yield finally fell. This offered TLT an opportunity to rally. Interestingly support is holding, but it likely won't for much longer given the RSI is still negative, the PMO is declining after an overbought SELL signal and Stochastics remain below 20.
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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