Today the S&P 500 was down only -0.20% but the Dow Jones Industrial Average was down -1.14%, and we always like to find out why. The root cause is that the S&P 500 is cap-weighted, meaning that each stock is weighted based upon its market capitalization (shares outstanding multiplied by the share price). Dow is arithmetically weighted, meaning that the highest priced stock carries the most weight. Today Goldman Sachs (GS), the second highest price in the DJIA, had a bad day, closing at 349.92, down -6.44%, which accounts for the divergence. We see no other underlying story there, other than AAPL at 135.94 (Mkt Cap: 2.16T) carries less weight in the Dow than Goldman at 349.92 (Mkt Cap: 118.6B). FYI--GS was down primarily due to the street's unhappiness regarding their earnings report.
Here's a weekly chart of GS for context. The decline has pulled the weekly PMO downward in a hurry.
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 12/28/2022
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: The market took a breather today, but did see a higher low and higher high to finish the day. The RSI is positive above net neutral (50) and the PMO is still rising. We now have a bearish rising wedge visible on the SPY in the short term.
The long-term bear market declining tops trendline is intact, but will be challenged tomorrow. The VIX did pull back on our inverted scale after the puncture of the upper Bollinger Band, but remains above its moving average which suggests internal strength. Stochastics may have topped, but they are well above 80 which also suggests internal strength.
Here is the latest recording (No show on 1/16):
S&P 500 New 52-Week Highs/Lows: We keep waiting to see the negative divergence between price and New Highs go away before the next price top. We must see a higher reading on New Highs so there are rising tops, not declining ones. We do see that the 10-DMA of the High-Low Differential is rising above the zero line which is good. However, near-term, it is overbought.
Climax* Analysis: There were no climax readings today.
*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.
The STOs had their second day of decline which is worrisome. They need to unwind and if that can happen without much damage to price, we would find that particularly bullish. At this time, we are seeing %Stocks > 20-day EMA falling again and %PMOs Rising are continuing to fall from overbought territory. Not a favorable chart.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERBOUGHT.
We'll list these indicators as overbought. While they could get more overbought, we think it prudent to take the warning now rather than later. We now have a higher percentage of stocks with PMO BUY signals than rising PMOs. That means we should see %PMO BUY signals top.
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.
The intermediate-term bias is BULLISH.
The long-term bias is BULLISH.
It may seem strange to see a bullish bias in all three timeframes, but remember this is a mechanical summation. We have strong participation of stocks above their 20/50-day EMAs in the short term (above 75%). The SCI is rising in the intermediate-term (but getting overbought). There are more stocks above their 50/200-day EMAs than Golden Crosses so the GCI should continue to rise.
CONCLUSION: We are reminded of the phrase "climbing the wall of worry". We hear of bearish sentiment, yet price continues to trend higher. While we are bullish in the short term, we detect the deterioration of the internals beginning. We have fewer rising PMOs than PMO buy signals. STOs continue lower with many indicators sitting in near-term overbought territory. Oh! Don't forget the bearish rising wedge. These are all legitimate concerns, but we don't want to overreact yet. Set and honor thy stops.
Erin is 20% exposed.
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We discussed last week that Bitcoin was in the process of recapturing its prior trading range. It has. Now the question becomes whether it will break away from that range. The indicators are very positive, but everything is very overbought. This was an incredible parabolic rally, but it is due for a pause at the very least. It doesn't look like a good entry as it is pushing against overhead resistance and is very overbought.
Bitcoin is now above the 200-day EMA for the first time since early April of 2022. As we said above, it is extraordinarily overbought.
Long-term rates have been in correction mode giving Bonds an opportunity to rally. Support is being met and broken. If they're going to rebound this is a good place for yields to do so.
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
Support for the 10-year yield is holding, as is the long-term rising trend. We can't get too bearish given this strong support level is holding up. The key support level in our minds is the 200-day EMA and 3.2%. Indicators are not favorable, but Stochastics did at least turn up. Until the PMO shows rising momentum, we wouldn't expect much but sideways movement at best.
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The rallied but it wasn't enough to change its bearish outlook. The RSI is negative and the PMO recently triggered crossover SELL signal well beneath the zero line.
If that weren't enough, UUP had a bearish resolution to a bullish falling wedge. We don't like the Dollar this week.
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: The short-term rising trend is intact. However, it is a steeper trend than the prior two uptrends meaning it will be harder to maintain without a breakdown. The RSI did drop out of overbought territory which is very good. The PMO is very overbought, but still rising. Stochastics are staying near 100 indicating internal strength.
GOLD Daily Chart: Gold had a bullish resolution to a bearish chart pattern and that is especially bullish. $GVZ is a problem given it is oscillating below its moving average on the inverted scale. This implies internal weakness, but we think Stochastics cancel that out. We expect Gold to move higher.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners were due for a pullback and today we saw a strong one. We need to watch internals closely. So far %Stocks > 20/50/200-day EMAs is robust, but when those internals begin to contract, GDX is especially vulnerable to decline. Currently given the current strong participation readings, remain bullish on GDX. It was due for a decline and it took advantage of overhead resistance to move lower. Now we watch for it to hold above support.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/21/2022
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: USO had its 7th positive close on this rally. Overhead resistance is now here. We believe we will see it break through resistance at 72.00 pretty easily. The RSI is comfortably positive and not overbought. The PMO is about to move above the zero line. The OBV tells us volume is coming in. Stochastics are above 80. Even the $OVX is oscillating above its moving average on the inverted scale which suggests internal strength. We like Crude.
We will get even more bullish on USO should the long-term declining tops trendline be broken.
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The 20-year yield was up today which pressured TLT lower. The PMO is looking toppy. Stochastics have already topped. At the same time, Stochastics are above 80 and the RSI is positive. With the deterioration in the PMO, we expect a test of the 50-day EMA.
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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