Today the Technology Sector (XLK) and US Crude Oil ETF (USO) 20-day EMAs crossed up through the 50-day EMAs (Silver Cross), generating IT Trend Model "Silver Cross" BUY Signals.
In the free DecisionPoint Trading Room this morning we noted that price was trading above the 200-day EMA on XLK and that relative strength has been improving this year. The Silver Cross reinforces this bullish bias. Participation is strong as we now have over 90% of the sector with price above both the 20-day EMAs and 50-day EMAs. The Silver Cross Index is accelerating higher. The Price Momentum Oscillator (PMO) has moved into positive territory and the RSI is in positive territory above net neutral (50). Very shortly the bear market declining tops trendline will be tested.
We'll discuss USO's signal change in more detail in the section on Crude Oil.
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 SPY broke the short-term declining tops trendline. The bullish cup with handle pattern is now confirmed with this follow-through rally.
This isn't just break above the short-term declining trendline, but it is also a breakout from the longer-term bear market declining tops trendline. Primary indicators are bullish with the RSI comfortably positive above net neutral (50) and an accelerating PMO. Even Stochastics look good as they have reversed in positive territory.
Here is the latest recording from Monday (1/23):
S&P 500 New 52-Week Highs/Lows: We still spot a negative divergence between price and price tops and the 10-DMA of the High-Low Differential is falling.
Climax* Analysis: Today there were climax readings on two of the four relevant indicators, and SPX Total Volume was solid. It should be noted that the two indicators that didn't climax were for the NYSE, which implies that the climax wasn't broad and was centered in large-cap stocks. Since Friday had an initiation climax, we think that we should recognize potential exhaustion, so we will designate today as an upside exhaustion climax.
*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.
STO switched direction on today's rally, turning back up. Participation is broadening given the jump on %Stocks > 20-day EMA and %PMOs Rising. Seeing 64% of the index with rising momentum is encouraging.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT.
Both the ITBM and ITVM are rising. They actually switched direction before the STOs. This is a good sign. 61% PMO BUY signals is very good, but we do need to see that indicator turn back up.
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.
This second day of rally has pushed all timeframes into bullish biases. We have a solid amount of stocks above both their 20/50-day EMAs and the SCI has bottomed above the signal line. There are more stocks above their 50/200-day EMAs than those with Golden Crosses (50-day EMA > 200-day EMA). This means the already rising Golden Cross Index will likely continue higher.
CONCLUSION: Right now rotation is swinging back into aggressive/growth sectors like Technology (XLK), Communication Services (XLC) and Consumer Discretionary (XLY). Investors do this when they are bullish on the market. They have reason to be optimistic based on our indicators. The STOs have turned up and the ITBM/ITVM were already rising. The bias is now bullish in all three timeframes. Today's upside exhaustion climax doesn't inspire confidence, but it doesn't mean price will fall. It likely means this two-day rally needs to be digested. While the bias is clearly bullish, we should not forget this is happening within a shaky economy with debt ceiling issues to name a few.
Calendar: There is an FOMC meeting next week with the announcement on Wednesday. The Fed is expected to raise rates again, but by only 25 basis points this time.
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Bitcoin has managed to overcome long-term overhead resistance at 22,500. Next up is 25,000. Bitcoin is extraordinarily overbought. Our thought was that price would recapture the September/October trading range. We didn't expect it to overcome it. The RSI is terribly overbought, as is the PMO. Stochastics are flashing internal strength as they oscillate comfortably above 80. We could be looking at another flag with flagpole developing. One thing we know for sure, is this is a parabolic rise. Don't forget that when a parabolic rally fails, it fails spectacularly. Knowing the history of Bitcoin, that is not at all out of the question. The pattern would call for a decline down to the prior basing pattern, that would be the November/December price range.
Yields are about to break declining trends, suggesting we could see another test of 2022 highs.
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
The declining trend hasn't been broken yet on $TNX's chart, but it has formed a new rising bottoms trendline after bouncing off strong support at 3.3%. It's very early, but we could be watching the beginning of a bullish double-bottom pattern. Rising rates don't help the market as a whole and it looks like they are ready to keep moving higher.
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar is in consolidation mode, basically doing nothing. This has caused the PMO to flatten. We don't see any internal strength building given Stochastics are moving lower below 20 and the RSI is well within negative territory below net neutral (50). We expect a breakdown out of this consolidation zone.
We'd been watching the fate of the bullish falling wedge, but with the low on this consolidation zone, we now have a solid declining trend channel.
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: The Dollar's weakness is Gold's strength simply based on their near-perfect reverse correlation. However, you'll note that Gold is exhibiting strength against the Dollar as well. Now we are able to see a rising trend channel. We are bullish on Gold, but it could see a test of the bottom of the rising trend channel on its way higher. The RSI and PMO both tell us that Gold is overbought so a small decline would help.
GOLD Daily Chart: The bearish rising wedge has disintegrated. Remember a bullish conclusion to a bearish chart pattern is especially bullish. $GVZ just popped above its moving average on the inverted scale and Stochastics are rising above 80 suggesting internal strength.
GOLD MINERS Golden and Silver Cross Indexes: Miners were mostly unchanged today. They have hit strong overhead resistance. Given the strong participation within this sector, we don't see it failing just yet. However, it wouldn't be a bad idea to set up a stop if you haven't already.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/23/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: As noted in the opening, USO saw an IT Trend Model "Silver Cross" BUY signal. We would've been more impressed had price given us a breakout today, but it is a good start. The indicators themselves look excellent. The RSI is positive and not overbought. The PMO is rising strongly and also is not overbought. Stochastics are easily oscillating above 80 suggesting internal strength. Another plus for internal strength is the oscillation of $OVZ above its moving average on the inverted scale.
At this time USO is attempting to break from its bear market declining trend. A decisive 3%+ breakout would have us very bullish on Crude Oil. It looks pretty good right now.
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Bonds are feeling the pinch as yields begin to inch a bit higher. This could be a real problem was a bearish double-top is beginning to form. Indicators are weakening with the PMO turning down and Stochastics dropping below 80. Support is available at the 20/50-day EMAs, but we believe it will test the rising bottoms trendline, likely without success.
Currently the formation is a symmetrical triangle. These are continuation patterns. Unfortunately the prior trend was down when this triangle formed so the expectation is a breakdown.
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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