We just added a new chart to the DP Alert ChartList on DecisionPoint.com, Rydex Analysis. This chart measures sentiment using a "money where your mouth is" approach to sentiment versus a sentiment "survey". Anyone can make sweeping statements about how they "feel" about the market, but this chart identifies what the money is saying.
On the chart you will see three components for Total Assets: Bear Funds, Money Market Funds and Bull Funds. We look to see where the money is flowing. In the current case, money is moving into bear and money market funds, but saying relatively the same for bull funds.
Now we take it to the next level with the Rydex Ratio itself. We take the total number of assets in bear and money market funds and divide by the assets in the bull funds. The smaller the number, the more bullish sentiment is. The bigger the ratio, the more bearish sentiment is. We invert the scale so that oversold (or most bearish) is at the bottom and overbought (or most bullish) is at the top.
Currently the Rydex Ratio is very oversold, but it isn't as oversold as it was back in 2020. We won't discount how bearish the Ratio currently is, but we do note we've seen more oversold readings.
Conclusion: As expected sentiment is very bearish, not only in surveys, but in asset flows as well. Sentiment surveys do not update until Thursday so we will visit those charts later this week. The question is whether sentiment is bearish enough to spark a rally. We believe it needs to get even more bearish.
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: Price continues to travel within a pennant formation that is attached to a flagpole. This is a reverse pennant chart pattern and it implies a decline ahead that is the same magnitude as the original drop. That would easily take price to support at $345.
Indicators are weak. The RSI is below net neutral (50) in negative territory. The PMO is still falling and is beneath the zero line. There are a few positive signs. The VIX dropped very close to its bottom Bollinger Band on the inverted scale. That does imply weakness, but it also implies sentiment is getting bearish. If we see it extend past the bottom Band, it would be time to look for some upside. Stochastics have turned up, but remain in deeply negative territory.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: The 10-DMA of the High-Low Differential has turned up. It's not usually this bumpy so we aren't going to read too much into it.
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 DOWN and the condition is NEUTRAL.
Both STOs have turned down today. We were wondering when this would happen given price weakness and churn. We have nearly 1/3rd of the index showing rising momentum. Given the market was down today it was good to see a slight expansion in %Stocks > 20-day EMA and rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL to OVERSOLD.
Technically, the ITBM/ITVM are rising, but ultimately they look very much like price--moving sideways. There was no improvement in amount of PMO BUY signals, but the reading continues to be oversold.
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.
The intermediate-term bias is BEARISH.
The long-term bias is BEARISH.
Based on the less than 50% numbers of stocks above their 20/50-day EMAs, we read the short-term bias a bearish. Because those readings are below the SCI and the SCI is falling, we have to consider the intermediate-term bias to also be bearish. We do see slightly more stocks above their 200-day EMAs than golden crosses, but we have less above their 50-day EMAs than golden crosses. Most important, the GCI has topped which moves our neutral bias in the long term to bearish.
CONCLUSION: We were talking this morning at our staff meeting about the non-appearance of Santa over the holidays. We both believe he did arrive... in the form of churn and chop. The market is weak and was even weaker going into holiday trading. Santa likely averted the decline that was ready to occur. The indicators have been muddied by this churn given STOs have topped and the ITBM/ITVM are still rising. We have to fall back on our primary indicator, the PMO, and market bias. The PMO is falling below the zero line. The bias is bearish in all three timeframes based on participation. While the market could rally here, we don't see a breakout move ahead. More than likely we are in for more chop and churn sideways. Find the pockets of strength. Based on Diamond Report scans, they are there.
Erin is 12% exposed with a 2% hedge.
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Bitcoin continues to inch along sideways. This consolidation has flattened the PMO to a degree that we can't see possible crossovers. The RSI is firmly negative, but Stochastics are making a move higher as price very slowly establishes a slight rising trend. The OBV is certainly suggesting downside pressure in its decline. Look for more sideways action with a bearish bias that could lead Bitcoin lower. When the PMO widens its distance from its signal line, we will take today's upside crossover more seriously. At this point it can easily drop below its signal line again.
Interest rates topped before reaching overhead resistance in most cases. We're bullish on rates rising, but we will be watching $TNX closely.
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
$TNX pulled back harshly today, but did manage a close above the declining tops trendline. It also stayed above the 20/50-day EMAs all day. Plenty of support is nearby. The 20-day EMA just crossed above the 50-day EMA, an IT Trend Model "Silver Cross" BUY Signal. Granted that will be lost right away should price drop beneath both of those averages, but it does suggest to us that this may be a hiccup. The RSI is falling but remains positive and the PMO did just move above the zero line. While Stochastics have topped, they are comfortably above 80. When they drop below, it will certainly put a blemish on the chart.
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The bullish falling wedge finally saw a real breakout. Previous wedges have executed with a drift sideways. This looks good for the Dollar. The RSI should hit positive territory very soon. The PMO is accelerating away from its signal line and Stochastics are rising again. The Dollar looks good right now.
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: In spite of the rally for the Dollar, Gold had a great day. We aren't fond of the bearish filled black candlestick, but technically it is a bullish outcome to the short-term rising wedge. That is generally considered especially bullish. However, price is still trapped in a longer-term bearish rising wedge. The PMO is no help, although it is on a BUY signal. The RSI is positive and with Stochastics oscillating in positive territory, there is internal price strength.
GOLD Daily Chart: The Gold Volatility Index ($GVZ) dropped beneath its lower Bollinger Band. Typically when a volatility index, on the inverted scale, drops beneath the lower Bollinger Band, it leads to an upside reversal. There may be a bearish pall on the chart based on the wedge, but the indicators just don't look that bad.
GOLD MINERS Golden and Silver Cross Indexes: GDX is back at the drop of its December trading range. The PMO is in decline, but participation is still quite strong given the SCI is well above 70% and the GCI is trending higher. The participation of stocks above their 20/50/200-day EMAs is robust. We would just be careful given the top of the range that has held for weeks is being tested again and could hold yet again.
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 is in a choppy short-term rising trend. The last six days of trading do look like a possible bearish double-top. Price is now below all three key moving averages and the rising trend is being challenged. We've been very bullish on Energy and Oil, but it is already beginning to fade. Indicators have quickly turned south. The PMO is topping well beneath the zero line and Stochastics have dropped below 80. Even the RSI is back in negative territory. We're afraid this rally is about over. Manage Energy positions carefully.
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With yields pulling back, TLT rallied off support. We see this as a 'last gasp' before dropping back to the October low. The PMO has not yet reversed and while Stochastics are rising, they are in deeply negative territory. The RSI is rising, but negative. We should see a "Dark Cross" of the 20/50-day EMAs soon.
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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