All of the sectors sank today, but one really tanked. We believe this sector should be avoided near-term given the breakdown of the technicals, particularly participation.
The Energy Sector (XLE) fell the most today and it damaged the technicals completely. The RSI has moved below net neutral (50), the PMO topped and Stochastics dropped below 80. Price dropped below all three key moving averages. The Silver Cross Index is topping. The most damage was done to participation. %Stocks above their 20/50/200-day EMAs dropped well below our 50% bullish threshold. The best we can say about XLE is that the mild rising trend hasn't been broken yet. We don't think this is the end of the decline in Energy.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
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 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: As we expected, price is now in pullback mode as we finish out holiday trading tomorrow. The two declines caused the PMO to top. It is very near a Crossover SELL Signal.
Stochastics are still staying above 80 and today the VIX penetrated and closed below the lower Bollinger Band on the inverted scale. While that often is a sign of weakness, the puncture could lead to higher prices in the very short term. However, given how tight the Bollinger Bands are, we don't want to read too much into this puncture.
Here is the latest recording on 6/23 (no show on 7/3):
S&P 500 New 52-Week Highs/Lows: New Highs contracted as we would expect. We did see some New Lows, but it is a sign of an overbought market given we only saw a few. The 10-DMA of the High-Low Differential is on its way down out of overbought territory.
Climax* Analysis: Today there were unanimous climax readings on the four relevant indicators, giving us a downside initiation climax. SPX Total Volume was a bit short and not at blowout levels, meaning it is not the level of volume that hints at a bottom.
*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 OVERBOUGHT.
Swenlin Trading Oscillators continue to fall. Both STOs are still overbought. Participation took a big hit, particularly %PMOs Rising.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
We now have IT indicators confirming declining short-term indicators. Both the ITBM and ITVM contracted and %PMO BUY Signals dropped below the signal line.
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 is BULLISH in all three timeframes.
We are still listing the bias as BULLISH in all three timeframes given all of the indicators are above out 50% bullish threshold. Additionally both the Silver Cross Index and Golden Cross Index continue to rise.
CONCLUSION: The market saw a much needed decline. Indicators have been very overbought and this pullback is offering an opportunity to decompress out of overbought conditions. The big news today is the topping of the ITBM and ITVM. This now confirms the declining short-term indicators. This is piggybacking on today's downside initiation climax. The pullback is on. With both the Silver Cross Index and Golden Cross Index rising, we would look at this as a short-term pullback. That could change quickly should we lose those 50% bullish percentages on participation so remain nimble and set stops.
Erin is 60% long, 0% short.
Erin's appearance was again postponed for Making Money with Charles Payne. They plan on getting her on next week. When we have the date, we'll let you know.
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BITCOIN
Yesterday's comments still apply:
"Bitcoin continues to consolidate just under overhead resistance. The PMO was looking alright, but it is now turning down. Stochastics have also dropped below 80. The RSI is positive, but we expect consolidation will continue."
INTEREST RATES
Interest rates are rising quickly. Consider the Interest Rate Hedge (PFIX) as a way to benefit from this rising rate environment. Avoid 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
Yesterday's comments still apply:
"$TNX has now confirmed the bullish falling wedge so we are expecting rates to move higher from here. The RSI is positive and there is a new PMO Crossover BUY Signal. Stochastics have also jetted above 80. If you're interested in trading interest rates, you can take a look at the Interest Rate Hedge ETF (PFIX)." We do note that resistance has been met so we could see a pause.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Despite landing on support, we don't see this as a stopping point for the decline. TLT is experiencing serious downside pressure as the 20-year yield pushes higher. We don't see rates falling anytime soon, so expect TLT and all Bond funds to decline further.
DOLLAR (UUP)
IT Trend Model: BUY as of 5/18/2023
LT Trend Model: SELL as of 4/12/2023
UUP Daily Chart: The Dollar continues to hold a short-term rising trend, but overhead resistance is arriving soon. However, given the indicators are getting bullish, we don't think it will pose a problem for the Dollar. The RSI is positive, the PMO is in the midst of generating a Crossover BUY Signal and Stochastics are above 80 now.
GOLD
IT Trend Model: NEUTRAL as of 6/8/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Yesterday's bearish engulfing candlestick was prescient as we saw Gold decline again today. We do not like the PMO top beneath the signal line.
GOLD Daily Chart: Stochastics turned down on $GOLD and the declining trend remains intact. Discounts have risen, but not to levels that we would consider bullish. This bearish sentiment is not helping Gold. We expect Gold will continue to lose ground.
GOLD MINERS Golden and Silver Cross Indexes: Well apparently we had a dead cat bounce on Gold Miners. It did fool us a bit given the pop in participation that accompanied it, but now participation is gone, completely gone. 0% of Gold Miners have price above their 20/50-day EMAs. The Silver Cross Index is also at 0%. Do not expect this level of support to hold.
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 remains in a declining trend despite a rising PMO, positive RSI and rising Stochastics. A breakout is due based on the indicators, but overall the Energy space is looking very weak. We have to expect a breakout, but we say that with weak conviction.
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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Price Momentum Oscillator (PMO)
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