Our usual sentiment indicators are not showing excess bearishness, but the increase in the number of bearish TV commentators we have observed indicates the presence of underlying bearish sentiment. We think this is the source of today's rally. This chart shows three of the four relevant indicators had climax readings today. The fourth, SPX Net A-D was close.
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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.
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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: Despite a forceful rally today, the bearish double-top is still in force. We did see the declining trend of the second top was cleared easily. The rally did not get the PMO to switch direction, it is still in decline.
Stochastics did turn up in positive territory, but remain below 80. This suggests some underlying strength to this move. The VIX did close above its moving average on the inverted scale, but the range has shrunk and most any move will see readings above and below the average during the day.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: We saw what we would expect as far as New Highs expanding on today's rally. The New Lows while less than yesterday were still a bit high for a strong rally like today's.
Climax* Analysis: Three of the four relative indicators had climax readings today, and one indicator was just shy of a climax reading, so today was an upside initiation climax. Yesterday's downside initiation climax produced none of the downside follow through we expected. Today's SPX Total Volume was solid.
*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) reacted to the rally by moving higher. Their indecision in neutral territory has really made them less than helpful. Price being in a sideways trading range is the culprit, but it tells us to take readings with a grain of salt or at least take them in total rather than day by day. Participation inched up, but indicators remain in a declining trend.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM and ITVM were mixed today with the volume indicator moving up and the breadth indicator moving lower. We saw a one percentage point gain on %PMO BUY Signals; not impressive given today's strong rally.
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.
In spite of today's rally, we stand by yesterday's comments on bias:
"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: Today's rally was really a complete surprise to us given the weak internals we have been pointing out regularly for the past few weeks. We would read today's rally as short-covering and not the beginning of a brand new bull market move. Based on today's upside initiation climax, we do expect to see some follow-through, but past that we are looking for a deep decline. We needed a rally to pull some bulls out of the bear camp. When sentiment gets stretched in one direction (bearish before today's rally), it's time to expect a move in the opposite direction like we saw today on very bearish sentiment. We think this has pushed bulls back on the rally train, splitting sentiment more evenly. Bottom line: We expect a deep decline and believe today was all about short covering.
Erin is 16% long, 7% short.
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Yesterday's comments still apply:
"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 seeing a boost, one that has us looking at more rally in spite of a possible big decline. With the debt ceiling looming ever closer, it will likely be a wild ride.
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
Yesterday's comments still apply:
"The 10-year yield popped higher today, but remains in a trading range. Indicators are very bullish right now. The RSI has moved back into positive territory and the PMO is surging above the signal line (bottoming above the signal line). Stochastics are rising strongly. All suggest that we will see $TNX continue to travel to 3.7%."
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT saw a higher high and higher low today, but couldn't push back above prior support at 103. Indicators are very negative and yields are looking bullish. Expect TLT to move even lower.
Our best guess is that the bullish ascending triangle will bust with a breakdown of the intermediate-term rising bottoms trendline. Today price did close above the intermediate-term rising bottoms trendline.
IT Trend Model: NEUTRAL as of 3/28/2023
LT Trend Model: SELL as of 4/12/2023
UUP Daily Chart: The Dollar rallied but formed a bearish filled black candlestick that implies a decline tomorrow. It also had a shooting star quality given the long wick on the candle. Indicators look good. Stochastics may've topped but it is an oscillator and must oscillate. They are also holding above 80 which implies relative strength. While we may see a decline tomorrow, we would still count on the Dollar to continue higher.
The symmetrical triangle on UUP has resolved upward as expected. Symmetrical triangles are continuation patterns so given the prior trend was up, we should expect an upside breakout which we got.
IT Trend Model: BUY as of 3/7/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Gold is under pressure from the Dollar. Indicators are pretty terrible and we see that relative strength against the Dollar is failing. The inverse correlation is coming back so Gold will likely struggle a bit longer. We expect to see it drop close to the 200-day EMA. A major decline could work in its favor though.
GOLD Daily Chart: Sentiment as observed by the discount on PHYS is fairly bullish given discounts have moved to the bottom of their range. It would actually help Gold if everyone were bearish on it, but not right now. $GOLD could be saved from a test of the 200-day EMA given the rising bottoms trendline isn't as far down.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Gold Miners confirmed the bearish double-top with a drop below the confirmation line. Price managed to close above the 50-day EMA, but we don't think it will stop there. The RSI is negative and falling, the PMO is falling on a SELL Signal and Stochastics have tanked. Participation is tanking as well. Probably a good time to shed any gold miner positions. The double-top's downside target is all the way down to about 30."
CRUDE OIL (USO)
IT Trend Model: SELL as of 5/3/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: We weren't on board with Crude Oil yet, but today's rally did change this. However, the main reason we are bullish on USO is that Erin ran her scans for ETF Day in DP Diamonds and six different Crude Oil ETFs were among the scan results. Indicators are firming up with the RSI nearing positive territory and the PMO turning up. Even Stochastics have reversed course. It looks like USO is headed to test the top of the trading range again.
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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