Considering our bearish outlook, this week's rally has been hard to watch; however, the configuration of the Silver Cross Index* (SCI) continues to show how this rally may ultimately fail. On the chart below we can see in 2022 the market fell off the all-time price high initiating a bear market. Note the SCI double top negative divergence. In March 2022 the market rallied strongly, but the SCI showed insufficient participation and the rally failed.
This week, we have SPY making new rally highs, while participation has been dropping off the recent SCI lower top. Over the years I have learned that the market will do pretty much what it damn well pleases, but this setup, virtually identical to 2021/22, is just impossible for us to ignore. We have the SCI double top, followed by a lower SCI top, which is a strong negative divergence to the price advance.
Conclusion: The market is being carried higher by the mega-cap tech stocks. We don't believe this situation can be sustained, and that the rally will fail.
(*) The Silver Cross Index (SCI) shows the percentage of stocks in the index with the 20-day EMA above the 50-day EMA, an intermediate-term BUY Signal.
Today the Utilities Sector ETF (XLU) 20-day EMA crossed down through the 50-day EMA (Dark Cross) below the 200-day EMA, generating an IT Trend Model SELL Signal. We had already seen a "Death Cross" of the 50/200-day EMAs. We don't expect to see these signals fail right away, particularly given such weak support under the hood.
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
For the Week:
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.
For the Week:
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: On the last two trading days before options expiration we expect low volatility, and we were not disappointed with the 1.4% trading range. Yesterday's breakout held up as price remains above support in spite of a decline today.
Indicators are very positive right now in the short term given the PMO Crossover BUY Signal remains intact, the RSI is above net neutral (50) and Stochastics are now above 80. The VIX is oscillating above its moving average on the inverted scale. There does appear to be internal strength at the moment.
SPY Weekly Chart: This week's rally pushed price above the symmetrical triangle on the weekly chart. This was unexpected given the prior trend was down and these triangles are considered "continuation" patterns. If price decides to fail soon, we will be annotating a bearish rising wedge.
New 52-Week Highs/Lows: New Highs stayed relatively high on the decline. The 10-DMA of the High-Low Differential is rising nicely which does confirm our recent breakout.
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 continue higher, but participation remained about the same as %Stocks > 20-day EMA and %PMOs Rising contacted only slightly. Both are either below or only a tad higher than our 50% bullish threshold.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
IT indicators are rising which confirms rising short-term indicators. However, we still have only 39% with PMO BUY Signals which is well below our 50% bullish threshold.
PARTICIPATION and BIAS Assessment: The following table 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 following table summarizes participation for the major market indexes and sectors. The 1-Week Change columns inject a dynamic aspect to the presentation. There are three groups: Major Market Indexes, Miscellaneous Sectors, and the eleven S&P 500 Sectors.
NEW SECTORS ADDED! We have begun collecting SCI and GCI data for four new sectors: Biotechnology (IBB), Regional Banking (KRE), Retail (XRT), and Semiconductor (SMH).
What jumps out at us on the Summary table is the incredible strength shown by Semiconductors (SMH) in the intermediate term. SMH gained 20 percentage points on the Silver Cross Index. It is accompanied by a strong 72% reading on the Golden Cross Index.
The lowest IT Bias belongs to Energy which is continuing to bleed off percentage points on both the Golden and Silver Cross Indexes.
This table is sorted by SCI values. This gives a clear picture of strongest to weakest index/sector in terms of intermediate-term participation.
Gold Miners hold the top spot on the SCI table, but notice the decimation of the SCI which lost 18 percentage points. This is an industry group under fire, not a group showing intermediate-term strength.
Regional Banks (KRE) hold the bottom spot for obvious reasons. They are seeing a bit of strength coming in, but we still believe holding Banks is highly risky in the current environment.
This table is sorted by GCI values. This gives a clear picture of strongest to weakest index/sector in terms of long-term participation.
Top dog for the Golden Cross Index goes to Gold Miners, but as we mentioned above, they are losing ground not gaining. We'll look at the GDX chart later, but it looks incredibly bearish right now.
The following chart objectively shows the depth and trend of participation in three time frames.
The market bias is BEARISH in all three timeframes.
We have fewer than 50% holding price above their 20/50/200-day EMAs. While the %Stocks above their 20/50-day EMAs are higher than the SCI, they aren't high enough to raise the SCI. The SCI is in decline. The GCI is flat, but given there are fewer stocks above their 50/200-day EMAs v. the GCI, it will likely begin declining again soon.
CONCLUSION: Indicators are decidedly bullish, but we are not. What? While we may be seeing rising STOs and ITBM/ITVM, participation is puny compared to what it was last March and that rally failed anyway. This rally isn't supported by the broad market, it is being driven by mega-cap stocks. So far this hasn't spurred a robust rally among the small- and mid-cap stocks. A shift in participation and seeing yields falling would get us on back on the bull market train. Until then we would continue to play defense.
Erin is 16% long, 7% short.
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Bitcoin did very little this week. We were able to carry our Monday comments all the way through this week. Not much has changed, but we do note that indicators are looking particularly bearish now. The RSI is in negative territory below net neutral (50) and the PMO is falling below the zero line. Stochastics look particularly weak as they topped in negative territory. The big bearish rounded top looks ominous. We would look for at least a test of the 25,000 level with a high likelihood of a breakdown to follow.
This chart is to show where some of the support/resistance lines come from.
Yields continue to rise putting pressure on the Bonds and the market in general. We don't see any reason why they would breakdown right now, but rest assured, when they do, the market is going to love it.
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 finally above resistance. Price is traveling in a bullish falling wedge so a breakout here seems highly likely. The indicators are certainly on board with the RSI rising in positive territory and not overbought, the PMO rising above the zero line and finally Stochastics are oscillating above 80.
MORTGAGE INTEREST RATES (30-Yr)**
**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 changed from 6.35 to 6.39.
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The rally in yields is killing Bonds. TLT broke down in a big way and formed three bearish filled red candlesticks in a row. Indicators are dismal so we expect support to be tested again at 98.
TLT Weekly Chart: Bonds could fall even further and possibly test support at 90 given the bearish weekly chart. The weekly RSI is falling in negative territory. What really has us bearish is the now topping weekly PMO.
IT Trend Model: BUY as of 5/18/2023
LT Trend Model: SELL as of 4/12/2023
UUP Daily Chart: The Dollar is rallying strongly and while it dropped a bit today, it didn't lose its rising trend and none of the indicators are showing damage. Topping Stochastics are a problem as long as they remain above 80.
UUP Weekly Chart: Lots of good news on the weekly chart. Price is holding a long-term rising trend and is forming a bullish double-bottom. The upside target of the pattern would be 2022 highs. Erin will be in Europe in July and is very much hoping that the Dollar will skyrocket! Not sure about that, but with a positive, rising weekly RSI and a weekly PMO that is turning up on the zero line, it's looking pretty good.
IT Trend Model: BUY as of 3/7/2023
LT Trend Model: BUY as of 1/5/2023
GOLD Daily Chart: Gold had a respite today as the Dollar did fall slightly. Gold was up much higher than the Dollar was down, so it showed internal strength today. This looks like a strong area of support, but indicators need to firm up before we start looking for a new rally in Gold. If we get the market decline we are expecting, Gold will definitely find favor.
The correlation with the Dollar is moving more negative which doesn't bode well for Gold given the highly bullish Dollar chart. There is certainly room for it to fall before it tests the bottom of the rising trend channel.
GOLD Weekly Chart: The weekly chart isn't all that negative so a test of the rising trend followed by a rally seems plausible. The weekly RSI remains positive and the weekly PMO is rising. The weekly PMO is looking suspect, but given the nearly 2% decline this week, it isn't a surprise.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners recovered somewhat today on the rally in Gold, but we don't have high hopes. Despite the rally, participation didn't see any expansion. The double-top has been confirmed. The minimum downside target of the pattern will be reached at 30, but remember, it is a "minimum" downside target. A rebound in Gold would help, but if we're right about a strong market decline, any rally on GDX would likely be muted.
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 were feeling pretty bullish about Crude Oil, but it is beginning to look shaky again. Today saw a bearish engulfing candlestick. However, we aren't bearish yet given the PMO is just flat and Stochastics continue to rise. We also see $OVX holding above its moving average on the inverted scale. That implies internal strength. This appears to be another pause before a resumption of the rally.
USO/$WTIC Weekly Chart: Crude is in a sideways trading range and we don't see much to suggest that will change. The weekly PMO is flat. The weekly RSI is negative, but it is rising. It is certainly vulnerable to another test of support at 60, but for now we are looking for a rally.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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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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