The lead article is a reprint of Carl's free blog post from earlier today:
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 rose from 6.32 to 6.50. The following table shows that, since the historic low in the 30-Year Fixed Rate mortgage, the same monthly payment can only service a mortgage that is one-third smaller than in January 2021. Or the same size mortgage ($500,000) will require a payment that is 56.8% higher.
This chart shows that rates are back to about where they were at the start of the Financial Crisis.
I hear a lot of gnashing of teeth about high interest rates, but when we bought our first home in 1964, the interest rate was 7.25%. When we bought our present home in 1972, the interest rate was 7.25%, so 6.5% seems pretty good to me.
The chart below shows the explosion of rates in the 1970s and 1980s. I don't know how today's inflation compares to that period, but it does demonstrate how bad things can get if inflation is not tamed.
CONCLUSION: Current interest rates are, in my opinion, somewhat normal with the exception of the inversion. I hear fantasies about when the Fed can start to cut, but cutting rates could just send us back to where the current inflation troubles began.
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
SECTORS
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: BUY as of 1/12/2023
LT Trend Model: BUY as of 2/9/2023
SPY Daily Chart: Price formed a bullish hammer candlestick, but it is also a filled black candlestick. The hammer is bullish, but the filled black candlestick is not. We think they cancel each other out. Somewhat remarkably price bounced right off support at the 200-day EMA. This bounce also occurred right off the bottom of the bearish rising wedge. The pattern suggests a breakdown, but that doesn't mean a breakdown here and now. Price could certainly move to the top of the pattern again. Indicators don't really support this though.
As we said yesterday, "The indicators favor a breakdown. The RSI is in negative territory and the PMO is falling on an overbought SELL signal. The OBV is holding a negative divergence with price tops. Stochastics have now dropped below 20." The VIX did rebound on today's rally, but it remains beneath its moving average on the inverted scale which implies internal weakness.
Here is the latest recording (2/13-no recording on 2/20):
S&P 500 New 52-Week Highs/Lows: The 10-DMA of the High-Low Differential picked a direction today: down. This usually accompanies declines.
Climax* Analysis: Today there were no climax readings.
*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 OVERSOLD.
The STOs continued lower on today's rally and participation didn't really improve by much.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM hit negative territory today. Both the ITBM and ITVM are moving lower. %PMO BUY signals is almost in oversold territory, but with only 15% of stocks carrying rising momentum, we know that we will see even fewer PMO BUY signals.
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.
Yesterday's comments still apply:
"The overall market bias is now BEARISH. Every timeframe has problems. We have an anemic number of stocks above their 20/50-day EMAs. The Silver Cross Index is plunging lower. There are fewer stocks above their 50/200-day EMAs versus the number of Golden Crosses. That means the Golden Cross Index will be slipping soon."
The GCI finally topped today.
CONCLUSION: With the VIX so far extended below its lower Bollinger Band on the inverted scale, we expected a relief rally. However, today's rally did little to improve the internals. As we noted yesterday, we don't believe this rally will have staying power. The indicators are simply too negative and in nearly every case, they aren't oversold. We should continue to be cautious regarding portfolio expansion and stops should be adhered to.
Erin is 22% exposed.
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BITCOIN
The PMO has turned down and doesn't look like it will reverse higher. The RSI is positive for now, but Stochastics are angling lower. Given the big bearish rising wedge on Bitcoin, we would look for price to continue lower.
INTEREST RATES
Yields backed off a bit today, but we still believe they will continue to rise given the bullish double-bottoms.
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 broke back down below the confirmation line of the bullish double-bottom pattern. We see it as a mechanical pullback to the breakout point. The indicators remain exceptionally bullish with the RSI in positive territory and not overbought, the PMO is rising and Stochastics are firmly above 90, not just 80.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: SELL as of 1/31/2023
UUP Daily Chart: Yesterday's comments still apply:
"The Dollar rallied today and is now testing overhead resistance at the December/January tops. It is in a bearish rising wedge, but the pattern is getting stale. It's so close to the apex that a move in any direction, including sideways, will execute the pattern. We keep it here to remind us there is a bearish element to the Dollar's rally. Indicators are still very strong and not overbought, so we do expect more upside out of the Dollar."
GOLD
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Yesterday's comments still apply with one add:
"GLD is clinging to support at December highs. Indicators are very negative. The RSI is below net neutral (50) and the PMO continues lower on a SELL signal. [PMO is now below zero now as well.] Stochastics are in the basement showing no heartbeat so we don't expect this level to hold."
GOLD Daily Chart: Yesterday's comments still apply:
"Gold continues to lose strength against the Dollar. Discounts are very high telling us what we already know, investors are bearish on Gold. This does look like an interesting point for a reversal, but until indicators perk up, we would avoid Gold."
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Gold Miners have reached support at the August high. We don't expect this level to hold primarily because there aren't any leaders to turn this ship around. There are no Gold Miners with price above their 20-day or 50-day EMAs. Gold is still under pressure so we expect this decline to continue for Miners."
CRUDE OIL (USO)
IT Trend Model: SELL as of 2/2/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil rebounded and has formed a bottom above all three previous price lows. The $OVX is back above its moving average. These are good signs. Still, the short-term declining trend out of the February high hasn't been broken yet. The RSI remains negative, the PMO is falling and Stochastics continue to fall in negative territory below net neutral (50).
BONDS (TLT)
IT Trend Model: SELLas of 2/21/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT continued its rally. It has bottomed above the last low and is holding the intermediate-term rising trend. However, we don't see a great future here given the yield chart is bullish. The PMO is still in decline and both the RSI and Stochastics are holding residency in negative territory. The recent "Dark Cross" of the 20-day EMA and 50-day EMA is also problematic.
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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Price Momentum Oscillator (PMO)
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