After yesterday's close Nvidia's (NVDA) earnings report was loved by one and all, and futures blasted skyward. At today's open NVDA was up +6.7%, and tech stocks and Market indexes were generally much higher, but things went down from there. NVDA was virtually unchanged for the day.
And things were much worse for the broad market.
And even worse for the Nasdaq 100.
Conclusion: The failure of the Nvidia rally is bad news for the market. It tells us that even AI hype can't prevent the much needed correction from continuing.
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 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: Price hit overhead resistance and immediately pulled back. It broke the short-term rising trend and formed a bearish engulfing candlestick. The PMO has now hit the zero line.
Stochastics turned over in negative territory. The VIX is below its moving average on the inverted scale and is not close to the lower Bollinger Band. This all implies internal weakness.
Here is the latest recording from 8/21:
S&P 500 New 52-Week Highs/Lows: New Highs expanded likely earlier in the day, we doubt this reading held up at the close. New Lows expanded. The 10-DMA of the High-Low Differential is declining below the zero line. It is near-term oversold, but it doesn't look ready to reverse yet.
Climax* Analysis: There were climax readings on three of the four relevant indicators today, giving us a downside initiation climax. SPX Total Volume was a bit light, so this was not a blowout day, meaning it was less likely to be the end of the down trend.
*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 DOWN and the condition is NEUTRAL.
Swenlin Trading Oscillators are still configured bullishly, but given they have spent so many days rising and nothing is coming of it, it shows us internal weakness. We lost quite a few stocks with rising momentum. Readings are oversold, but could definitely move lower.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
With the loss of stocks having rising momentum, we didn't see any improvement on %PMO Cover BUY Signals. The ITBM/ITVM continue lower but are in oversold territory.
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 is BEARISH in all three timeframes.
We didn't move out of our bearish stance in the short term yesterday as participation, while improving, hadn't expanded that much. Now readings are back in decline for %Stocks > 20/50/200EMAs. The SCI and GCI are configured very negatively so the bias is clearly bearish in the intermediate and long terms.
BIAS Assessment: The following table expresses the current BIAS of various price indexes based upon the relationship of the Silver Cross Index to its 10-day EMA (intermediate-term), and of the Golden Cross Index to its 20-day EMA (long-term). When the Index is above the EMA it is bullish, and it is bearish when the Index is below the EMA. The BIAS does not imply that any particular action should be taken. It is information to be used in the decision process.
Today the Health Care Sector IT BIAS shifted to Bearish.
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CONCLUSION: When bullish indicators or conditions don't produce rallies, we know we have to remain defensive. Indicators were looking up yesterday and it failed to result in follow-through. The market was ready to rally, but it failed miserably with the Tech sector getting hurt the most. This was unexpected given the well received earnings from NVDA and thus revealed the market's internal weakness. Participation is thin and could get even more oversold. IT indicators are oversold but can certainly accommodate more downside. Support held last time but the downside initiation climax and bearish engulfing candlestick leave the market particularly vulnerable to close the week. Stay defensive, Erin is ready to reopen short positions.
Erin is 8% long, 0% short.
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BITCOIN
Bitcoin is forming a new trading range and based on weak indicators it is likely to see a test of last week's lows. This could also be considered a bearish reverse flag, so support is still very vulnerable.
INTEREST RATES
Yields inched higher today keeping rising trends intact.
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 rebounded today. It hit overhead resistance and pulled back. Stochastics and the topping PMO suggests we could see a "handle" added to this "cup", but so far the rising trends are intact.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Bonds cooled today. Price hit overhead resistance at the 20-day EMA and was turned away. Stochastics and the PMO are rising suggesting we could see some upside follow-through. The problem is the very bullish looking 20-year yield.
We do admit that this rally could actually get some legs based on the breakout from the bullish falling wedge.
DOLLAR (UUP)
IT Trend Model: BUY as of 8/3/2023
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar was looking vulnerable yesterday on the bearish engulfing candlestick, but that didn't turn out to harm it. The RSI is overbought, as is the PMO, but overbought conditions can persist when there is a bullish bias. Stochastics are very strong and suggest the Dollar isn't done with its rally.
GOLD
IT Trend Model: NEUTRAL as of 8/2/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Given the Dollar was up +0.80%, we would've expected Gold to tank. It didn't and this tells us it is gaining internal strength. Notice that discounts are paring back. That tells us that market participants are feeling better about the metal.
GOLD Daily Chart: Gold's PMO is now back on the rise and the RSI is very near positive territory above net neutral (50). Stochastics are rising strongly as well. We like Gold right now.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Gold Miners have hit short-term overhead resistance. We will see what they are made of now. Participation expanded nicely for %Stocks > 20/50/200EMAs so we have to take this rally seriously, but also temper expectations. We know how GDX can fool. This is why a rise in the Silver Cross Index would have us more confident given they are at resistance."
CRUDE OIL (USO)
IT Trend Model: BUY as of 7/12/2023
LT Trend Model: BUY as of 8/3/2023
USO Daily Chart: Yesterday's comments still apply:
"Crude Oil could be forming a bull flag and the 'flag' is a bullish falling wedge. We can't count out USO, but indicators are very negative right now. Stochastics look particularly dreary. The 50-day EMA is here for support. If it fails or we see USO drop beneath this bullish falling wedge, we will move bearish. For now, we are neutral given the dichotomy between the bullish wedge and bearish indicators."
We see a complex bearish head and shoulders developing and today's decline confirmed it.
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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