More positive signal changes came in today. The NYSE Composite Index ($NYA) 50-day EMA crossed up through the 200-day EMA (Golden Cross) generating an LT Trend Model "Golden Cross" BUY Signal. The breakout above the prior December high is encouraging, as is the rising PMO which is not yet overbought.
Also, the Russell 2000 (IWM) 20-day EMA crossed up through the 50-day EMA (Silver Cross) generating an IT Trend Model "Silver Cross" BUY Signal. Price is challenging November/December highs, but hasn't quite broken out yet. The PMO is now in positive territory on a crossover BUY signal and that does suggest an eventual breakout ahead.
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: Today saw a "follow-through day", basically the fourth day in a row of rally. It wasn't accompanied by super strong volume, but it is a bullish engulfing candlestick. The RSI is positive and the PMO is rising on a BUY signal.
The VIX is worrisome. Typically when it punctures the upper Bollinger Band on the inverted scale, a decline ensues. We didn't see that result off yesterday's puncture, but this overbought VIX reading will become an issue sooner rather than later. On the plus side, Stochastics are oscillating above 80.
SPY Weekly Chart: The bear market declining trend is about to be tested. The weekly RSI isn't enlightening, but the weekly PMO did bottom above its signal line very bullishly so a breakout isn't out of the question. We don't see a break in that trend as automatically meaning a new bull market, but it would mean a likely bear market rally ahead.
New 52-Week Highs/Lows: New Highs have a persistent negative divergence with price that set up this week. The 10-DMA of the High-Low Differential is rather flat, but ultimately still rising which is positive.
Climax Analysis: There were no climax readings today. This week only saw one climax. On Wednesday there was an upside exhaustion climax. It didn't result in an exhaustion, but we should keep it in the back of our minds for next week.
*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 VERY OVERBOUGHT.
STOs finally backed off. This doesn't mean a decline ahead. It could, but we also know these indicators couldn't get much more overbought. Eventually they have to unwind and turn lower. Still, we do see this as a bearish development. There really wasn't any new momentum within the index today, but a 79% reading is robust and could keep the market rising.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is SOMEWHAT OVERBOUGHT.
All IT indicators are rising strongly and confirming the current rally. They are getting somewhat overbought, but not dangerously so. 73% of the index are on PMO crossover BUY signals. That is sign of internal strength.
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 one-week change on Silver Cross Indexes listed below show plenty of improvement with lots of "plus" signs. The market gained strength this week and seeing those SCIs moving up quickly confirms it. We also saw lots of positive movement on Golden Cross Indexes, with two exceptions: Energy (XLE) and Consumer Staples (XLP).
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 (GDX) continues to gain strength. The SCI couldn't move any higher, but the GCI did. With Gold looking bullish GDX will likely continue to rally. Utilities (XLU) and Materials (XLB) are 2nd and 3rd. XLB is gaining strength and holds an already strong SCI reading.
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) long-term is still in the lead based on GCI value, but it is deteriorating somewhat. The SCI on Energy already has lost ground (although it held up this week). The GCI was down significantly. While there are pockets of strength within that sector, overall it is showing weakness building under the surface, particularly in the long term.
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 BULLISH.
The long-term bias is BULLISH.
The bias in all three timeframes is bullish. This doesn't mean the market will continue up and up and up, it means that conditions are favorable for more rally. We a robust number of stocks above both their 50/200-day EMAs. The SCI reading is lower than those participation readings, meaning the SCI should continue higher. The SCI is currently rising and is only somewhat overbought. The GCI accelerated its rise this week and with more stocks above their 50/200-day EMAs than the GCI percentage, we know the GCI will continue to move upward.
CONCLUSION: It was a good week overall for the market, but the concern is that it simply took too long to get going. We talked about two problems we saw yesterday. One was overbought STOs and now they have turned over. The other was a negative divergence between New Highs and price. Now we have IT indicators getting overbought now too. However, we do note the SCI and GCI readings continuing to show vast improvement among sectors and indexes, so internal strength is still there beneath the surface. Wrapping it up, look for price to trickle up next week based on strong internals but weak short-term indicators. It will essentially be holiday trading and we have options expiration; we likely won't see any earth shattering moves in either direction.
Calendar: (1) The market will be closed on Monday for Martin Luther King, Jr. Day; (2) Next week is options expiration. Expect low volatility toward the end of the week.
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Bitcoin rose parabolically this week and was able to recapture its trading range prior to the FTX collapse. The RSI is extraordinarily overbought and given the parabolic formation, be careful here. It is begging for a correction. The PMO and Stochastics still look favorable, but if either begins to slow or turn down, the decline will likely be swift and painful.
This chart is to show where some of the support/resistance lines come from.
Rates continued to slide this week, but managed a positive close today.
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 longer-term rising trend is holding and $TNX looks like it could reverse higher given it rebounded today off support at 3.4%. As we noted all week, this is an area of strong support and a perfect place for an upside reversal. However, the PMO, RSI and Stochastics tell us it isn't a given. Watch Stochastics as we move forward, they will be the first to hint at a reversal.
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 6.48 to 6.33.
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar broke down below its trading range this week and looks very weak moving forward. The RSI is negative and the PMO triggered a crossover SELL signal today. Stochastics are moving lower below 20, a sign of extreme weakness.
The breakdown also took out the bullish falling wedge. A bearish conclusion to a bearish chart pattern is especially bearish. We expect the Dollar to continue lower.
UUP Weekly Chart: The weekly chart shows a near classic parabolic breakdown. When these formation breakdown, price generally returns to the last basing pattern. In this case that could mean a move down to $24 or $25.
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GOLD Daily Chart: With the Dollar on the ropes, Gold is taking advantage. We have added an indicator window that measure Gold strength. The Dollar and Gold usually hold a reverse correlation so when the Dollar is up 1%, you expect Gold to be down 1%. However, sometimes Gold is up more than expected or down more than expected. Notice that since November Gold has been gaining strength on the Dollar.
Gold saw a very strong continuation of yesterday's breakout from the bearish rising wedge. A bullish conclusion to a bearish chart pattern is especially bullish. Price, based on the RSI, is getting overbought and the rise is starting to look somewhat parabolic as each short-term rising trend gets more steep. The PMO is now overbought. However, we just don't see Gold as internally weak or vulnerable. Remember that overbought conditions can persist in a bull market which Gold is in based on the 50-day EMA being greater that the 200-day EMA.
GOLD Weekly Chart: Gold is hitting a resistance zone between the mid-2021 high and late 2020 highs. As noted above the short-term focus is bullish. We like the weekly chart too. The weekly RSI is positive and not yet overbought and the weekly PMO is rising and above zero now. Also we note that discounts are paring back, indicating that investors are more bullish on the metal.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are now up against resistance at the June top, basically the point where GDX began to slide lower. With Gold look bullish, we believe GDX will have the wind at its back. The RSI is positive and not quite overbought. The PMO is accelerating higher and participation is excellent. We discussed the 100% reading on the SCI and the rising GCI. We would expect a breakout here.
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 rallied every day this week and has now had a decisive breakout from the short-term declining trend. It is thought that China's reopening will mean more energy consumption. More demand will push prices higher and investors are betting on just that. Price did move above the 200-day EMA today and indicators are bullish. The only issue is like the VIX, $OVX has punctured the upper Bollinger Band on the inverted scale and that typically leads to a day or two of decline. Maybe we will see a pause when resistance is met at $72.
USO/$WTIC Weekly Chart: Price is hugging the long-term rising trend. The weekly RSI nearly hit positive territory. The weekly PMO turned up bullishly above the zero line. We are expecting Crude to rally further after a likely pause.
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT broke its short-term declining trend almost as soon as we annotated it. The rising trend is easily holding and interest rates still look weak. Given the positive and not overbought RSI, PMO BUY signal and Stochastics oscillating above 80, we believe the rally is likely to continue. Next area of resistance that could be a problem is $112.50.
TLT Weekly Chart: The weekly chart is favorable. The weekly RSI is now positive and the weekly PMO is rising strongly. Price avoided reentry into the long-term declining trend and is rebounding. We think the rally in Bonds will continue a bit longer.
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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