It was a harsh day of trading. Indicators really took a hit across the board. As part of this deterioration, three of the indexes that we cover had their Silver Cross Indexes (SCI) turn down. This isn't minor, particularly given it was rising so strongly before.
For review, the SCI measures how many stocks have a 20-day EMAs above their 50-day EMAs. This indicator goes hand in hand with our other participation measures, %Stocks above their 20/50/200-day EMAs. We'll talk about the SPY later in this report.
When reviewing both the Nasdaq 100 (QQQ) and S&P 100 (OEX) charts below, we note that participation of stocks above their 20/50-day EMAs has shrunk quickly. Readings are now in the fifties which is not healthy. This is evidence that the market will likely be angling lower.
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 short-term rising wedge was executed with gusto as the market tumbled. The RSI is still positive, but the Price Momentum Oscillator (PMO) has topped on high volume.
On the bright side, the VIX remains above its moving average on the inverted scale which suggests there still might be some internal strength. Stochastics remain above 80 which also suggests internal strength, but both the VIX and Stochastics are heading lower.
Here is the latest recording (No show on 1/16):
S&P 500 New 52-Week Highs/Lows: We now have an official price top so the negative divergence between New Highs and price has been printed. The 10-DMA of the High-Low Differential is still rising, so we don't have too much damage. Mainly it is due to low readings overall and very few New Lows.
Climax* Analysis: There were strong and unanimous climax readings today, giving us a downside initiation climax. SPX Total Volume was confirming but not climactic.
*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 NEUTRAL.
STOs moved much lower today. This was accompanied by a huge hit on participation of stocks above their 20-day EMA and stocks with rising momentum. Less than half of the index have rising momentum. That suggests more downside on face value.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERBOUGHT.
The ITBM/ITVM both dropped out of somewhat overbought territory. They've been rising for quite some time so this turn of events is quite bearish. While we may see 69% of stocks with PMO BUY signals, we know that with only 48% showing rising PMOs, that number will continue to deteriorate.
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 NEUTRAL.
The intermediate-term bias is BEARISH.
The long-term bias is BULLISH.
The short-term bias changed to Neutral due to the precipitous decline in %Stocks > 20/50-day EMAs. The SCI has topped, leaving us bearish in the intermediate term. The GCI continues to rise and there are more stocks above both their 50/200-day EMAs than there are stocks with golden crosses. Therefore, there is a high likelihood that the GCI will continue to rise.
CONCLUSION: We detected problems yesterday but didn't want to overreact. Today is full of confirmations of trouble ahead. Erin reviewed ETFs for "ETF Day" in DP Diamonds and found nearly every chart had bearish engulfing candlesticks or bearish filled black candlesticks. These one-day patterns suggest a decline for each. And that would suggest a market decline ahead. Today's downside initiation climax is also accompanied by topping SCIs and new downturns for the ITBM/ITVM and PMO. The evidence is strong that we will see lower prices.
Erin is 20% exposed. She is likely to lock in some profits to pare down that exposure.
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Bitcoin hit the top of the prior trading range and pulled back. The RSI has been extraordinarily overbought for some time. The PMO is also overbought. This seems the perfect place for Bitcoin to pause and digest the parabolic rally. It isn't out of the question that Bitcoin could crash based on that parabolic rally. Stochastics are still strong above 80 so maybe it will make a run for the September high. We believe it will need a pullback or more pause before that happens. Overbought conditions need to be cleared.
Long-term rates have been in correction mode giving Bonds an opportunity to rally. Support is being met and broken suggesting Bonds will continue to march higher.
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 is finally looking shaky for $TNX. A line of defense was broken previously, a short-term rising bottoms trendline drawn from the August low. Now it has broken support at 3.4% and the intermediate-term rising trend drawn from the March low. We see the next support level is at 3.25% and that is about to be broken. Indicators are bearish across the board.
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar was one of the few winners today in that it finished unchanged and not lower. However, it spent much of the day in the red. Indicators suggest it will resume its decline. The PMO is on a SELL signal and the RSI is very negative. Stochastics do leave us some hope as they are rising out of very negative territory. Still, they are below 20 and that isn't good.
UUP had a bearish resolution to a bullish falling wedge and hasn't recaptured it. We don't like the Dollar.
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 was broken today, but the chart still looks fairly good. The RSI is positive, the PMO is rising on a BUY signal, Stochastics are above 80 and $GVZ just moved above its moving average on the inverted scale.
GOLD Daily Chart: We are seeing discounts trending up and that tells us that investors are getting more bearish on Gold again. In general, sentiment is contrarian so we want to see high discounts. Overall we still look favorably upon Gold.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners continued their pullback today. Internals have still not deteriorated enough to get bearish on this group. So far %Stocks > 20/50/200-day EMAs are robust, but when those internals begin to contract, GDX is especially vulnerable to decline. It does appear they are ready to to test support at the 20-day EMA, but overall we think GDX is healthy.
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 formed a giant bearish engulfing candlestick. On the bright side it did set a higher high. The technicals are still strong across the board even though price dropped below the 200-day EMA on the almost 2% decline. The RSI is positive and the PMO just got above the zero line. Stochastics are above 80. Additionally, $OVX is oscillating above its moving average on the inverted scale and that implies internal strength. We still 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: TLT has now broken out from the symmetrical triangle. This is a very good sign as a symmetrical triangle normally breaks in the direction of the prior trend. The prior trend out of the summer highs was down so an upside breakout is good. We do have resistance looming ahead at the December high and 200-day EMA, but the PMO has accelerated higher and the RSI is positive with Stochastics above 80. Rates are due for a reversal, but for now Bonds look healthy.
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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