Yesterday, the Consumer Staples Sector changed from BUY to NEUTRAL. Today the Consumer Discretionary Sector 20-day EMA crossed up through the 50-day EMA (Silver Cross), generating an IT Trend Model "Silver Cross" BUY Signal. Price is now pushing up against resistance and the declining tops trendline. Given the RSI is positive (albeit overbought), the Price Momentum Oscillator (PMO) is rising and not overbought, and Stochastics are above 80, we expect a breakout. More evidence would be the strong participation numbers under the surface. Let's not forget relative strength, it is continuing to get stronger.
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
For the Week:
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.
For the Week:
CLICK HERE for Carl's annotated Sector charts.
THE MARKET (S&P 500)
IT Trend Model: BUY as of 1/12/2023
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: The market (SPY) is about 2.5% away from initiating a new bull market by advancing 20% above the October low. First, price needs to deal with the bearish rising wedge. If it can break out of the top of the pattern, it would be especially bullish.
This area of overhead resistance has been stout, so it will take a concerted effort to push past. We like the indicators. The RSI is positive and not overbought. The PMO is also positive, rising and not overbought. Stochastics look good as they oscillate above 80.
SPY Weekly Chart: This week's breakout took out the bear market declining tops trending. The weekly PMO is rising on a BUY signal, but remains below the zero line. The weekly RSI has just entered positive territory which is bullish.
SPY Monthly Chart: Note: There are two trading days left in the month, but we will cover monthly charts today. If there are any substantial changes by next Tuesday, we'll report on it then.
Price has broken above the declining tops line, but the monthly PMO is still falling. We don't think it will be able to bottom in the two days remaining in January, but we'll be keeping an eye on it.
New 52-Week Highs/Lows: Another day with higher prices and contracting New Highs. That sets up another very short-term negative divergence with price.
Climax Analysis: There were no climax readings today. We only saw one climax this week and it was an upside exhaustion climax that resulted in a small decline the next day.
*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.
Currently we have negative divergences between the STOs and price. Technically they haven't "printed" as we don't have a price top yet. We also see negative divergences forming on participation of stocks above their 20-day EMA and %Stocks with rising momentum. Again, they aren't "official" until we have another price top. Maybe they can push higher to dissolve those divergences before price does top.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
STOs are overbought and so are the ITBM/ITVM. All are still rising which is bullish, but we do have to watch for negative divergences setting up in the intermediate term as well. No real progress was made by the %Stocks with PMO BUY signals this week. Right now only 61% have rising momentum. Given PMO BUY signals are at 63%, we are vulnerable to that indicator falling further.
PARTICIPATION and BIAS Assessment: The following table 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 following table summarizes participation for the major market indexes and sectors. The 1-Week Change columns inject a dynamic aspect to the presentation.
The most negative IT Bias is held by Consumer Staples (XLP). Given the "Dark Cross" of the 20/50-day EMAs yesterday, this makes sense. Notice it lost 12 percentage points on the Silver Cross Index this week.
The strongest IT Bias is held by Communication Services (XLC) followed by Real Estate (XLRE). XLRE seems the dark horse here given its Silver Cross Index gained 23 percentage points and the Golden Cross Index saw a 4 percentage point increase.
This table is sorted by SCI values. This gives a clear picture of strongest to weakest index/sector in terms of intermediate-term participation.
Leadership is still being held by Gold Miners (GDX), but XLC is close behind as it catapulted 24 percentage points on its Silver Cross Index. GDX could be unseated next week. It did lose a percentage point. We aren't surprised to see XLP as the serious laggard with a 36% reading on its Silver Cross Index.
This table is sorted by GCI values. This gives a clear picture of strongest to weakest index/sector in terms of long-term participation.
Energy (XLE) is the long-term leader with a 91% Golden Cross Index. It didn't change this week, but the Silver Cross Index did. This sector is still showing internal strength. Real Estate (XLRE) is the laggard as far as the Golden Cross Index, but as noted earlier it is beginning to show strength on its Silver Cross Index. The Golden Cross Index is slower so it will take time for it to compete with XLE, XLI and GDX.
The following chart objectively shows the depth and trend of participation in three time frames.
The market bias is BULLISH.
The short-term bias is BULLISH.
The intermediate-term bias is NEUTRAL.
The long-term bias is BULLISH.
Overall we believe the market has a bullish bias. The IT is an exception above as it is listed as "neutral". This is because there are fewer stocks above their 20-day EMA than those with Silver Crosses. This implies the SCI could move lower. Currently it is mostly flat. Long-term, there are more stocks above their 50/200-day EMAs than those with Golden Crosses. This implies the Golden Cross Index will continue to move higher.
CONCLUSION: The market bias overall is bullish, but we are starting to see problems developing going into next week. Should the market top quickly, more than likely we will have negative divergences set up on our STOs, New Highs and ITBM/ITVM. Negative divergences generally play out as expected with a follow-up decline. Price is sitting within a bearish chart formation as well. Indicators in general are rising and healthy which does suggest follow-through. On the flip side, if the market doesn't top quickly, we won't be able to avoid those negative divergences. Next week be mindful of the underlying issues when expanding exposure.
Calendar: There is an FOMC meeting on Tuesday with the announcement on Wednesday. The Fed is expected to raise rates again, but by only 25 basis points this time.
Erin is 15% exposed.
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Bitcoin spent much of the week consolidating last Friday's giant rally. This could be another flag on a flagpole, but the "flag" is messy and technically melting up. Flags that are formed with a rising trend tend to not work out. Bitcoin is terribly overbought and needs more than just a pause to clear those conditions. The PMO is looking a little bit toppy in highly overbought territory and the RSI is way too high. Stochastics, however, suggest internal strength is still available. Look for more sideways movement with a possible decline to the November top.
This chart is to show where some of the support/resistance lines come from.
Yields are starting to form new short-term rising trends that suggest they will keep rising alongside the Fed Funds rate.
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
We spy a very short-term reverse head and shoulders. If $TNX continues higher, it will begin forming a bullish double-bottom. We're getting way ahead of ourselves, but if that pattern confirms with a breakout above 39.00, the minimum upside target would take it back to the October high.
MORTGAGE INTEREST RATES (30-Yr)**
**We watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. As buying power has been shrinking, home prices have come under pressure.
This week the 30-Year Fixed Rate fell from 6.15 to 6.13.
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar is on the verge of a "death cross" of the 50/200-day EMAs. Price has held up as it consolidates sideways and avoids a decline. The RSI is negative and Stochastics are still below 20. Both have turned up. The PMO is very little help as it travels sideways with price.
Price broke below a bullish falling wedge and never reentered the pattern. A bearish conclusion to a bullish chart pattern is especially bearish. We are leaning toward a breakdown rather than a break higher.
UUP Weekly Chart: The weekly chart is ugly. The weekly RSI is negative and the weekly PMO is pointed directly down and showing no signs of deceleration. A breakdown from a parabolic advance implies price will move to the last basing pattern. That would be around 25.00.
UUP Monthly Chart: The monthly chart also tells us to expect a breakdown on the Dollar. The monthly RSI, while positive, is falling fast and will hit negative territory below net neutral (50) soon. The monthly PMO has ominously topped in overbought territory.
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GOLD Daily Chart: Gold is in the process of confirming the bearish rising wedge. Price closed pretty much on the rising bottoms trendline, but looks like it will retreat to 175.00. The RSI in positive territory and Stochastics are oscillating above 80 which is bullish. The PMO is still technically bullish given it is on a crossover BUY signal; however, it topped this week.
In Gold's case, it broke out of a bearish rising wedge and so far it is holding above it which is quite bullish. We aren't thrilled that the Gold Volatility Index ($GVZ) punctured the upper Bollinger Band on the inverted scale as that many times will signal a problem with too much bullish sentiment. However, a peek at the discounts on the Physical Gold Trust (PHYS) tell us that investors are still bearish on Gold so we are mostly ignoring $GVZ.
GOLD Weekly Chart: The weekly chart is bullish but does show us that Gold is coming up against a strong overhead resistance zone between the early 2021 top and mid-2021 top. Given the strongly rising weekly PMO and positive/not overbought weekly RSI, we remain bullish on Gold in the intermediate and long terms.
GOLD Monthly Chart: The monthly chart shows you why we are bullish in the long term. The monthly RSI just moved into positive territory and the monthly PMO has turned up. In the longer term, Gold holds a reverse correlation with the Dollar as expected, but it is beginning to decouple. That's a good thing since we are bearish on the Dollar.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners have been on a tear but this week they did cool somewhat. There is now a bearish rising wedge on the chart. While participation under the surface remains strong for GDX, we do note that quite a few Gold Miners lost support at the 20-day EMA. We're still bullish on Miners in general, but a test of the bottom of the wedge seems likely.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/23/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil hit overhead resistance this week and stalled. Today saw a big bearish engulfing candlestick. The RSI is still positive but it has turned down with the PMO. Stochastics also dropped below 80. This could be a flag on a flagpole, but in this case the flag is straight across. They have a better chance of executing than a rising flag on a flagpole, but they don't execute as well as a declining flag on a flagpole. We've been bullish on USO, but with the deterioration on the chart we are feeling more neutral about it now.
USO attempted many times to overcome its bear market declining tops trendline, but continues to fail.
USO/$WTIC Weekly Chart: While it can't overcome the declining tops trendline on the weekly chart, it is holding a long-term rising bottoms trendline. The weekly RSI is still negative. The weekly PMO holds the same reading it did last week so there's not much to go on. For now we will look for the rising trend to hold.
WTIC Monthly Chart: On a monthly basis, support at the 2018 high has been compromised. The monthly RSI is positive but declining. The monthly PMO is ominous.
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Bonds struggled at the end of this week, but overall price is moving sideways. Stochastics have begun to break down and the PMO is topping. We discussed earlier that we see new rising trends on longer-term rates so we are expecting a test of the rising trend soon.
Technically price is in a large symmetrical triangle. These are continuation patterns. Given the prior trend going into this triangle was down, we expect a breakdown will ultimately occur.
TLT Weekly Chart: The weekly chart looks pretty good, but we can see if price were to start lower right now it would form a bearish double-top. The weekly RSI and weekly PMO are rising and positive, so for now we won't dwell on a possible bearish chart pattern.
TLT Monthly Chart: The monthly chart isn't great, but it isn't that bad either. Price is currently holding above strong support at the 2012 top, 2017 and 2018 lows which is good. The monthly RSI is rising but unfortunately remains in negative territory. The monthly PMO is in decline, but has hit oversold territory and appears to be decelerating. Overall, we don't think TLT is a great buy right now.
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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