We've been watching and waiting for our IT indicators to turn down in overbought territory and today they did. We'll talk about this further in the section with our IT Breadth Momentum (ITBM) and IT Volume Momentum (ITVM). Add to this a topping PMO. These indicators typically top at major market price tops so the warning signal is in place.
Communication Services (XLC) saw its PMO move below the signal line which triggered a Crossover SELL Signal. Price has already turned down and today the loss took price below the 20-day EMA. All of this occurred at overhead resistance. It appears we are looking at a possible Adam & Eve double-top forming. Participation is falling off the map with an important negative crossover by the Silver Cross Index (SCI). That nearly always occurs at price tops.
Other problems like an RSI about to move into negative territory and falling Stochastics spell trouble for this sector. XLC looks like a shorting opportunity, definitely not a buy.
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 3/30/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: We've annotated a slightly longer-term rising bottoms trendline to form the bottom of a different rising wedge. That was compromised intraday so we would look for a continued decline based on the resolution of the rising wedge.
As noted in the opening, the SPY PMO topped today in overbought territory. Additionally, Stochastics dipped severely today, although they do remain above 80. The VIX never punctured its upper Bollinger Band on the inverted scale, but it certainly can be considered overbought. None of this is good for the market.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Highs expanded, but so did New Lows. Remember New Highs was the highest intraday reading. We suspect that quite a few of those lost those highs by the close. The 10-DMA of the High-Low Differential is still rising which is positive, but it is definitely near-term overbought.
Climax* Analysis: There were two climax readings among the four eligible indicators, and SPX Total Volume was almost equal to the one-year daily average, so we are declaring today to be a downside initiation 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.
After rising yesterday, the STOs decidedly turned down. Participation thinned and Rising Momentum took a hit too. All of these short-term indicators have given us negative divergences suggesting more downside ahead.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
This was a big day for the ITBM and ITVM which both turned down today. Nearly every time this indicator tops, a market decline follows. Not surprisingly, we lost some PMO BUY signals among components of the SPX. This is ominous coming alongside a PMO top and downside initiation climax.
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 market bias is NEUTRAL.
The intermediate-term market bias is BULLISH.
The long-term market bias is BULLISH.
The short term is deteriorating on our indicator charts so we are moving to a "Neutral" short-term bias. The Silver Cross Index (SCI) and Golden Cross Index (GCI) continue to rise with the GCI accomplishing a positive crossover its signal line. We have participation readings that are all above our 50% bullish threshold which leaves the bias as bullish in the intermediate and long terms.
CONCLUSION: The short-term bias has deteriorated to Neutral, but it is quickly on its way to being bearish. Topping IT indicators confirmed the short-term indicators' decline today. To make matters worse, the PMO topped and we had a downside initiation climax. We haven't even mentioned all of the negative divergences. The market is on its way down. Aggressive investors can consider shorts right now and more conservative investors should be tightening stops and possibly booking profits. Any positions showing negative momentum should likely be shed. Play defense.
Erin is 30% long, 4% short.
Calendar: Tomorrow is the last trading day before options expiration. Expect low volatility -- not a forecast, just an observable tendency.
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BITCOIN
As indicators began to breakdown we became suspect of Bitcoin's ability to hold support. Today it broke down. Indicators are decidedly bearish with the RSI dropping below net neutral (50) and Stochastics dipping into negative territory as well. Support isn't really that far away if you consider the late March lows to be it. Certainly the 50-day EMA will be tested, likely unsuccessfully.
INTEREST RATES
Yields dipped today, but we still believe we are in a rising rate environment so we expect them to move higher after this dip.
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 pulled back heavily after reaching overhead resistance at about 3.6%. The 20-day EMA is holding as support and the PMO is still rising. The RSI is positive and Stochastics are above 80. We expect $TNX to reverse higher soon.
BONDS (TLT)
IT Trend Model: BUY as of 3/17/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The trading range continues to hold up on TLT. The RSI and Stochastics are hinting the rally will continue to the 200-day EMA, but the PMO is still declining. Ultimately we expect the longer-term rising bottoms trendline to be compromised.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 3/28/2023
LT Trend Model: SELL as of 4/12/2023
UUP Daily Chart: The Dollar continues to meander its way through a declining trend channel. The RSI is negative and flat. The PMO has yet to give us a Crossover BUY Signal. Stochastics topped today which is very bearish. We expect the Dollar to continue to trickle lower within the declining trend channel.
GOLD
IT Trend Model: BUY as of 3/7/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Gold has a bearish bias in our opinion. We have a bearish rising wedge and a PMO SELL Signal. The RSI is holding in positive territory and Stochastics are hinting they will begin rising in earnest again. Until the PMO turns up or at least Stochastics begin rising more deliberately, we don't expect much out of Gold.
$GOLD Daily Chart: Yesterday's comments still apply:
"Investors are getting more bearish on Gold given discounts on PHYS are expanding. That isn't helping. At this point we believe Gold will drop lower and test the February high. We will have to reevaluate at that time, but it is certainly vulnerable to testing the longer-term rising bottoms trendline."
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners continue to pull back toward support at the January high. Participation is thinning quickly and Stochastics are moving lower in negative territory. We don't have high hopes for Gold nor the market so GDX will likely lose that support level.
CRUDE OIL (USO)
IT Trend Model: BUY as of 4/10/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil is falling fast with very negative indicators. Stochastics are dropping and the $OVX is falling on the inverted scale suggesting internal weakness is building. It has landed on the 50-day EMA so a pause may occur, but we expect price to test the bottom of the trading range at either 62.00 or 58.00.
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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DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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