(Editor's Note: The opening of today's report is a reprint of a free article written by Erin earlier today.)
Over the weekend, Carl decided to put together the chart below. We often make comparisons between the SPY and its equal-weight sibling, RSP. By determining divergences between the two ETFs, we can see whether the mega-cap stocks are leading the charge or whether a rally is supported by the rest of the index.
Currently we have rising tops on the SPY, but declining tops on RSP. This alone tells us that market participation is far from broad. The Apples of the world are leading the index. And, at this point, those Apples of the world are barely holding the market together right now as the SPY is looking very toppy.
Now let's add the Silver Cross Index (SCI) which in and of itself is equally weighted. Each stock is looked at to see whether it has a "Silver Cross" or not. A Silver Cross is a 20-day EMA moving above the 50-day EMA. Typically those stocks are intermediate-term bullish.
Notice at the previous price top in February, the SCI was reading at about 80%. On this higher price top, only about 55% were on Silver Crosses. That's roughly a 30% decrease in the reading and sets up a massive negative divergence. RSP is confirming the problem as it has a much lower April price top.
Conclusion: Our question is how is the SPX going to start another bull leg when the rally isn't broad? If the Apples of the world slip, there is no one there to pick up the slack. At this point, we see this as an ominous set up that will likely lead to a severe decline. To see Carl discuss this chart, watch a replay of today's DecisionPoint Trading Room HERE.
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MAJOR MARKET INDEXES
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 Market Index, Sector, and Industry Group 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: The market finished higher, but remained in a short-term declining trend. The double-top formation is still in force. The RSI is flat and mostly neutral, but PMO continues to decline.
Stochastics and the VIX are no help so we continue to see no internal strength, but conversely no internal weakness.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: Negligible New Highs/New Lows. The 10-DMA of the High-Low Differential continues to decline. Typically when this indicator falls we see market weakness.
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 FLAT and the condition is NEUTRAL.
The Swenlin Trading Oscillators (STOs) are having a hard time figuring out what to do with this flat market. Today they were mixed with the STO-B rising and the STO-V continuing to fall. This isn't bullish. While we did see some improvement in participation of stocks above their 20-day EMA and %Rising PMOs, their declining trends are still visible.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM and ITVM both continued lower which bolsters our bearish outlook. We had a percentage point gain on %PMO BUY Signals, but it remains in a sharp declining trend.
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 market bias in all three timeframes is BEARISH.
We have stark negative divergences on every indicator on our Bias chart. Readings are below the 50% bullish threshold with the exception of the Golden Cross Index but it remains beneath its signal line in a declining trend. %Stocks above their 20/50/200-day EMAs readings are lower than both the Silver Cross Index and Golden Cross Index, meaning they will likely continue lower.
CONCLUSION: While Swenlin Trading Oscillators (STOs) aren't in agreement, every other indicator is decidedly bearish. The severe negative divergences on the Silver Cross and Golden Cross Indexes are giving us ample warning that a market decline is on the way. RSP is also providing data that the market is being propped up by mega-cap stocks. When those stocks begin to lose ground, we would expect the foundation to collapse. Be careful out there.
Erin is 18% long, 7% short.
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Bitcoin is rallying after hitting strong support at 27,000. However, it hasn't erased the rounded top. The RSI is negative and the PMO just dropped below the zero line. Stochastics are turning up so we would look for more movement along support until the rest of the indicators firm up.
Interest rates are in a holding pattern overall as they move mostly sideways. We expect more of the same, barring a deep decline which will likely draw investors toward Bonds.
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 10-year yield is staying within a trading range, as are most yields. The indicators are leaning bullish with the RSI in positive territory, the PMO rising alongside Stochastics which turned back up in positive territory. We would look for a test of the top of the trading range, but as we continue to note, a deep market decline will likely push rates lower as investors flee to Bonds.
IT Trend Model: BUY as of 3/17/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT is rangebound, but within the range, we have identified a bearish descending triangle (declining tops, flat bottom). Indicators are weak with the RSI in negative territory and the PMO currently on a SELL signal. Stochastics are adding insult to injury as they top in negative territory. Until a market decline attracts investors to Bonds, we expect them to continue lower.
Our best guess is that the bullish ascending triangle will bust with a breakdown of the intermediate-term rising bottoms trendline. However, as we keep chirping, a market decline could help Bonds out.
IT Trend Model: NEUTRAL as of 3/28/2023
LT Trend Model: SELL as of 4/12/2023
UUP Daily Chart: The Dollar paused the rally today, but we don't think it is finished yet. The indicators are far too positive to look for a decline of much magnitude. The RSI is comfortably within positive territory. The PMO should get above the zero line tomorrow barring a strong decline. Stochastics have hit territory above 80 suggesting internal strength.
IT Trend Model: BUY as of 3/7/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Gold admittedly looks toppy. Stochastics suggest internal weakness. Both the RSI and the PMO are basically in neutral. The Dollar looks very bullish right now and that will likely pose a problem for Gold.
GOLD Daily Chart: It is a good thing that the inverse correlation has eased on Gold and the Dollar. This provides Gold an opportunity to keep a decline in check or even rally on a day when the Dollar rallies.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners have an ugly bearish double-top. On the bright side, price did rally off this support level. However, Carl identified numerous negative divergences on the GDX chart. The RSI is neutral, but both the PMO and Stochastics are falling. We did see slight improvement to participation of stocks above their 20-day EMA, but overall the numbers are weak. Consider setting stops on your Gold Mining positions.
CRUDE OIL (USO)
IT Trend Model: SELL as of 5/3/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil appears to be rebounding off support. Unfortunately we are looking at this as a pause before another decline. The RSI is negative, the PMO is falling on a SELL Signal and Stochastics topped in negative territory. We expect a decline back to 60.00.
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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