With Technology finishing the highest among the sectors today, we thought we would look "under the hood" at the Semiconductor (SMH) industry group to see if they are showing strength.
It isn't happening yet. In fact, despite a higher close for Technology, Semiconductors closed down -0.89%. They don't appear healthy under the hood either. Notice the drop in participation of stocks above their 20/50-day EMAs. These guys tend to lead the Technology sector, but they are showing internal weakness.
With the %Stocks above their 20/50-day EMAs lower than the Silver Cross Index (SCI) reading, we know that the SCI will continue lower. EMAs are easy to visualize as we know if price is above the EMA, the EMA will rise. If price is below the EMA, it will fall. Therefore, we cannot maintain the SCI reading when %Stocks indicators are below the SCI. The same goes for the Golden Cross Index, only we compare %Stocks > 50/200-day EMAs to the Golden Cross Index reading.
Some of the Semiconductor charts look interesting, but seeing a loss of participation, it might be wise to steer clear or at least keep a close eye on semiconductor positions.
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
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: The morning started off well for the SPY, but as lunchtime arrived, it began to lose steam. Ultimately, the SPY closed below its open, but higher than Friday. This formed a bearish filled black candlestick. We also note a long wick at the top of the candlestick. Unfortunately this candle pattern suggests lower prices tomorrow.
Price turned back down after reaching overhead resistance at the December tops. The indicators are favorable and do suggest upside follow-through. The RSI is positive, the PMO is rising again after bullishly turning up above the zero line. Stochastics are moving quickly higher, suggesting internal strength. The VIX remains above its moving average on the inverted scale, that also suggests internal strength.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: While price today was higher than Friday's, new 52-Week Highs contracted. This is short-term bearish.
Climax* Analysis: There were no climax readings today.
*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 are still confirming this rally and do suggest there is more upside to go. On the flip side, we did see a contraction on %Stocks > 20-day EMA and rising momentum. Like New Highs, this is a very short-term negative divergence.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERSOLD.
IT indicators are also continuing to confirm the new rally as they rise. We are seeing 20% of stocks with PMO crossover BUY signals and given 46% have rising momentum, we will see that continue to expand as rising PMOs begin to cross above signal lines.
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 bias of the market is back to BEARISH across the board.
Not only did we see a contraction in %Stocks > 20/50/200-day EMAs, all of those indicators are reading lower than both the Silver Cross Index and Golden Cross Index.
CONCLUSION: STOs gave us two days notice of a market upside reversal. They continue to rise, as well as the ITBM/ITVM. Today's deflated rally set up short-term negative divergences. With price moving higher, we shouldn't have seen fewer New Highs nor a decline in participation. We don't believe this rally is done, but given the divergences and bearish candlestick, tomorrow could see a decline.
Erin is 25% exposed.
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BITCOIN
Bitcoin executed the bearish rising wedge as expected. Price is now consolidating the drop from Friday (remember Bitcoin trades 24/7). The indicators aren't improving with this consolidation so we would expect at least a test of the February low.
INTEREST RATES
Yields finished the day higher. After consolidating for the past three months, yields are headed higher. Given the confirmed double-bottom patterns, we would expect them to rise 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
$TNX broke out and then had a mechanical pullback to the breakout point. The PMO is acting a little fishy, but the RSI and Stochastics are positive. We would look for a rebound off the confirmation line (middle of the "W") of the double-bottom pattern.
DOLLAR (UUP)
IT Trend Model: BUY as of 2/27/2023
LT Trend Model: BUY as of 2/24/2023
UUP Daily Chart: The Dollar is drifting out of a bearish rising wedge. UUP is in consolidation mode.
The PMO and Stochastics look quite bearish on the 1-year daily chart and we do see a tiny double-top that suggests a breakdown, not a breakout.
GOLD
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Given the Dollar fell today, we would expect Gold to have seen a gain as the inverse correlation with the Dollar is very strong. But no, a decline occurred just below resistance at the February lows. Like the Dollar, indicators are mostly flat. One big difference is Stochastics which look very bullish on Gold v. the Dollar.
GOLD Daily Chart: Gold is beginning to show relative strength against the Dollar. It didn't materialize today given Gold declined as the Dollar declined. We like that price is holding along the 20/50-day EMAs. This looks like a chart that is improving not deteriorating like the Dollar.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners took it on the chin today given the market barely closed up and Gold closed lower. GDX is highly susceptible to what happens with both. This has definitely taken the shine off this group as participation pulled back as well. We don't think the rally is over for Gold Miners, particularly if we're right about Gold turning around.
CRUDE OIL (USO)
IT Trend Model: SELL as of 2/2/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: USO continues to move within its trading range. The Energy sector has gotten a nice boost from the latest rally in Crude Oil. The indicators certainly suggest the rally will continue. It's moved above the last top and formed a higher low at the end of February. Stochastics are also higher than they were last time. This is an excellent opportunity for Crude to breakout above 72. However, we would warn that $OVX popped above the upper Bollinger Band on the inverted scale. Like the VIX, these punctures will usually lead to a day or two of downside.
We can see that this rally has also taken price out of its intermediate-term declining trend.
BONDS (TLT)
IT Trend Model: SELLas of 2/21/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT recaptured its rising trend on Friday after a gap down. This formed a reverse island. We are bullish on interest rates and given their inverse correlation, that means we are bearish on Bonds. The chart is trying to improve based on Stochastics, but the RSI is negative and the PMO is flat. We expect Bonds will resume their declining trend.
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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