Netflix (NFLX) and Alphabet (GOOGL) had incredible rallies today and that is likely the reason we saw the Communication Services (XLC) sector breakout strongly.
The NFLX breakout confirmed a bull flag. The expectation is a move the magnitude of the flagpole. The Price Momentum Oscillator (PMO) was in decline but today was pulled upward forming a bottom above the signal line. That is considered especially bullish. Stochastics were also pulled higher suggesting follow-through ahead for NFLX.
GOOGL also looks great on this breakout. We have an Adam & Eve double-bottom forming. The RSI is positive and the PMO is rising strongly out of an oversold crossover BUY signal. Relative strength studies show GOOGL is beginning to not only outperform its industry group, but also the SPY.
The breakout on XLC was impressive. This line of overhead resistance was extraordinarily strong given all the "touches" on that level. There is now overhead resistance looming at the 200-day EMA and 55.00. However, when we look under the hood, we see that participation is expanding; so it isn't just NFLX and GOOGL rallying. There are more stocks above their 20/50-day EMAs than those with Silver Crosses (20-day EMA > 50-day EMA). The Silver Cross Index (SCI) is rising strongly and still has plenty of upside available given it only sits at 68%. Stochastics are above 80, the RSI is positive and the PMO is accelerating higher. More than likely we will see a breakout here unless profit taking pulls it back down or the market tumbles.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
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: This is looking more and more like a bullish cup with handle formation. Today's rebound came right off support at December highs and late November lows. The PMO is back to rising and the RSI, which had dipped into negative territory, has now moved back into positive territory.
Stochastics are still iffy, they decelerated their decline, yet they are still pointed lower. The VIX is encouraging as we are seeing it oscillate above its moving average.
Here is last week's episode as last Monday was a holiday:
SPY Weekly Chart: There was hope that the bear market declining tops trendline would be broken this week, but the declines of Wednesday and Thursday kept price in its declining trend. On the bright side, the weekly RSI is in positive territory and the weekly PMO is still rising in spite of this week's decline.
New 52-Week Highs/Lows: This week saw a negative divergence between New Highs and price tops. This led into this week's difficult declines. The 10-DMA of the High-Low Differential is still declining which is bearish for the market.
Climax Analysis: There were unanimous, strong climax readings today, and SPX Total Volume confirmed an upside initiation climax. This week saw two other climax days. Wednesday was a downside initiation, while yesterday was a downside exhaustion. Each was prescient, we'll see how today's climax resolves on Monday.
*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.
Monday STOs began their descent, warning us of market weakness. They continue lower which is bearish. We did see an expansion of rising momentum within the index, but 55% is still pretty weak.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is SOMEWHAT OVERBOUGHT.
In an interesting turn of events, the IT indicators topped on Wednesday, confirming the bearish decline, but today they have turned back up. Given the ST indicators are still in decline, we chalk this up to interesting not optimism. Notice that more PMO BUY signals were lost in spite of the strong rally. That's not a good sign, particularly given we saw an increase in rising momentum. The problem is that we have fewer stocks with rising momentum so that indicator will likely continue to contract.
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.
Of the indexes, we saw increases in both the Silver Cross Indexes and Golden Cross Indexes suggesting things may not be as bearish as they appear. Of the sectors, XLE and XLY gained the most on their Silver Cross Indexes, but XLE didn't see improvement on the Golden Cross Index. It holds a -21 bias, that is due to the Golden Cross Index being so much higher than the Silver Cross Index, not necessarily a sign of underlying weakness.
XLC holds the highest IT Bias of +40. As noted in the opening, XLC is likely on the way up. It's Silver Cross Index gained points.
This table is sorted by SCI values. This gives a clear picture of strongest to weakest index/sector in terms of intermediate-term participation.
Gold Miners hold the top spot on Silver Cross Index values, but it did see some deterioration this week, likely on the mid-week pullback. Still we want to always see expansion or at least not contraction like this week. We still like Gold Miners. They and Gold are likely the ones that have Materials (XLB) in second place. Long-term it showed improvements in the Golden Cross Index and no change in the Silver Cross Index which is bullish for the sector.
This table is sorted by GCI values. This gives a clear picture of strongest to weakest index/sector in terms of long-term participation.
XLE holds the top spot on Golden Cross Index values. It saw improvement on the Silver Cross Index as well, suggesting this group is improving not failing as the bias might imply.
The following chart objectively shows the depth and trend of participation in three time frames.
The market bias is NEUTRAL.
The short-term bias is NEUTRAL to BEARISH.
The intermediate-term bias is BEARISH.
The long-term bias is BULLISH.
The bias is different in all three timeframes. Let's explain. While we saw an expansion in %Stocks > 20/50-day EMAs, they are still less than the Silver Cross Index. The Silver Cross Index topped this week and that is bearish for the intermediate term. Long-term is still reading bullish because the Golden Cross Index is rising and we have more stocks with price above their 50/200-day EMAs than those with Golden Crosses.
CONCLUSION: So much for a quiet options expiration day. Typically we see high volume and low volatility. We have to consider that today could be a short covering rally and not the beginning of a leg higher. We can't get that bullish here; the technicals clearly favor the bears given declining STOs, weak participation and topping Silver Cross Indexes. We will go into next week expecting a rally continuation based on ITBM/ITVM upside reversals and strength visible in the aggressive sectors, particular Communication Services (XLC). But we also need to prepare for the worst given declining ST indicators. Preparing for the worst means limiting exposure and setting hard stops or tightening stops to preserve profits.
Erin pared down here 20% exposure at the beginning of the week to 15%.
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Bitcoin soared today after digesting the prior parabolic rally. It is now at strong overhead resistance and it is extraordinarily overbought based on the RSI and even PMO. It is due for a serious pullback. Profit taking could cause a deep decline next week.
This chart is to show where some of the support/resistance lines come from.
Rates continued to trend lower this week, but finished higher on the day. Bonds have been enjoying the ride, but many of the yields are at support and are primed for a rebound.
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 formed a new bottom today so we have adjusted the rising bottoms trendline. The important point to note is that price formed the bottom on strong support near December lows and the June top. If they're going to rebound this is the spot to do it. Indicators aren't flashing bullish. The RSI is negative as are Stochastics. We do see the PMO decelerating which does support our vision of an upside reversal in yields overall.
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 6.33 to 6.15.
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar didn't do much this week, but it did form a new bottom. Indicators are looking terrible. Today saw a bearish engulfing candlestick. The RSI is negative and the PMO is falling on a SELL signal. Even Stochastics turned down in negative territory.
Last Friday, UUP dropped below a bullish falling wedge formation. A bearish conclusion to a bullish chart pattern is especially bearish. Price held up after the breakdown, but barely. We don't like the Dollar right now.
UUP Weekly Chart: The weekly chart looks terrible. The weekly RSI is negative and the weekly PMO is unperturbed in its decline. This is a textbook breakdown of a parabolic rise. The textbooks will tell you that the decline of a parabolic breakdown will continue until it hits the last basing pattern. That could mean a drop to 25.00.
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GOLD Daily Chart: The Dollar consolidated, but Gold continued to trend higher. Notice the relative strength of Gold v. the Dollar. The RSI is overbought right now, but not exceedingly so and the PMO is rising gently. Stochastics have turned up above 80. There is plenty of internal strength to keep Gold moving higher, but we do note a bearish rising wedge has formed in the short term. A pullback toward 175.00 is certainly possible.
Overall we like Gold moving forward. Notice it broke up and out of a bearish rising wedge in the intermediate term. A bullish conclusion to a bearish chart pattern is especially bullish. Discounts held about the same all week. They are still very high suggesting investors are fully on board with Gold. Bearish sentiment is good for Gold.
GOLD Weekly Chart: A look at the weekly chart tells you why we are bullish on Gold in the longer term. The weekly RSI is positive and not overbought and the weekly PMO is rising strongly. Price is getting near a strong resistance area, but the indicators suggest it won't have a problem overcoming it.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners didn't do that much overall this week. They are basically in consolidation mode. Given internal strength based on participation and the Golden and Silver Cross Indexes, we expect them to see follow-through on today's rally.
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 was up over 2% on the week. It did spend much of this week consolidating between the 200-day EMA and overhead resistance at the December high, but given the positive indicators we expect a breakout. The RSI is positive, the PMO is rising nicely and Stochastics remain above 80. Even the $OVX is oscillating above its moving average on the inverted scale which also suggests internal strength.
The long-term declining trend is now being challenged. Given our evidence presented above, we expect the bearish trend to be broken for Crude Oil.
USO/$WTIC Weekly Chart: The weekly chart inspires confidence. The weekly RSI managed to get above net neutral (50) and the weekly PMO is attempting to have a crossover BUY signal. Price bounced off horizontal support at 60.00 and the rising bottoms trendline is intact.
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: After this week's price top, we were able to annotate a declining tops trendline. This forms the top of a symmetrical triangle. These formation are "continuation" patterns. The trend prior to the triangle determines whether a breakdown or breakout is more likely. Given the long-term declining trend that led into this chart pattern, we would look for at least a test of the rising bottoms trendline near 102.50 with a high likelihood of a breakdown to follow.
TLT Weekly Chart: Price is losing support at the June low. Indicators are still positive, but we don't like this week's top. It's really early, but we could be looking at the beginning of a second top that would complete a bearish double-top.
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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