Today, the Small-Caps outperformed the large-cap indexes in a big way. You'll note on the summary table below that both the SP600 (IJR) and Russell 2000 (IWM) were clear winners today. Even the SP400 (IJH) saw some love. The question on our minds is whether weakness in Mega-Caps will translate to renewed interest in small-cap names. Given today's outperformance, it is definitely a possibility.
We have "under the hood" indicators for IJR so let's take a look. IJR has certainly been rallying but today saw a breakout that should portend a challenge of all-time highs. Notice the large influx of stocks moving above their key moving averages. This has given the Silver Cross Index and opportunity to rise again and is keeping the Golden Cross Index elevated. The relative strength line tells the story. This index had been seriously underperforming the SPY, now relative strength is rising again.
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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MARKET/INDUSTRY GROUP/SECTOR INDEXES
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THE MARKET (S&P 500)
IT Trend Model: BUY as of 11/14/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: The SPY cooled today as the small-caps heated up. An intraday all-time high was logged. The index is overbought based on the RSI. We are seeing more margin between the PMO and its signal line as it rises.
What caught our eye on the chart below is the increase in the VIX reading which put it under its moving average on our inverted scale. Something spooked investors today. One possible reason is they are waiting with bated breath to see what various inflation gauges reveal this week.
Here is the latest recording from 2/12:
S&P 500 New 52-Week Highs/Lows: The 10-DMA of the High-Low Differential is slowly making its way up in overbought territory. New Highs did expand and New Lows contracted on today's small decline.
Climax* Analysis: We saw one climactic reading, but it was not confirmed by volume and we didn't see any other climactic activity so we'll list it as not a climax day. More than likely the reading was caused by the upward thrust in small-caps.
*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.
Swenlin Trading Oscillators (STOs) popped higher on an unchanged day which is very bullish. We also see a nice increase in stocks above their 20-day EMA and more rising momentum. Negative divergences are still a problem.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
Both the ITBM and ITVM are rising and confirming our Swenlin Trading Oscillators. They are not at all overbought and can accommodate far more upside. Our issue is that it has set up a steep negative divergence with readings currently being so low.
PARTICIPATION: 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 BULLISH in the short term.
The market bias is BEARISH in the intermediate term.
The market bias is BULLISH in the long term.
We do have negative divergences that are a problem on this chart, but we also note that we have better than 50% participation of stocks above their key moving averages. The numbers are healthy enough to keep the rally together a bit longer which is why our bias is bullish in the short term. The Silver Cross Index is below its moving average so the IT Bias is bearish. It did halt the decline somewhat, but readings on %Stocks > 20/50EMAs are below the SCI reading so it will take more effort to get those silver crosses. The Golden Cross Index took a turn for the worse today, but it remains above its moving average so the LT Bias is bullish.
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.
The items with highlighted borders indicate that the BIAS changed today.
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CONCLUSION: It was a weak day for the Magnificent 7. They didn't take the market down with them. We instead saw rotation into the broader market, small-caps in particular. We would expect mega-cap weakness to be met with overall market weakness. That didn't happen. STOs are rising strongly, confirmed by the ITBM/ITVM. The rally has more upside to go, we just might not see the large-cap indexes perform quite as well. Given we did see more stocks with rising momentum, the rally is broadening within the index. We foresee more upside, but given the overbought nature of the market, we would be careful adding longs.
Erin is 75% long, 0% short.
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BITCOIN
Bitcoin broke to new 52-week highs today and it doesn't look ready to stop the rally yet. The PMO is rising strongly and Stochastics are rising well above 80. The only issue is that Bitcoin is getting very overbought. Given the look of the RSI's history on Bitcoin, it probably won't be a problem.
BITCOIN ETFs
INTEREST RATES
Yields paused their rise for the most part today. Given rate cuts will be postponed by the Fed, we expect to see them stay in a rising trend.
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 PMO has now reached positive territory, but $TNX hasn't been able to breakout. Stochastics also look very bullish and the RSI is not overbought. We are expecting a breakout.
BONDS (TLT)
IT Trend Model: BUY as of 11/28/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With yields in rising trends, we aren't expecting much from Bond funds moving forward. TLT is acting like it will hold this support level, but we aren't so optimistic. The PMO is in decline alongside Stochastics and the RSI is negative.
DOLLAR (UUP)
IT Trend Model: BUY as of 1/23/2024
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar remains in a rising trend and we believe it will continue to rise. It isn't doing much now, but given the rising PMO and positive Stochastics, we are looking for it a rally kickstart.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold continues to consolidate sideways. The good news is that despite a Dollar on a strong rising trend, Gold hasn't seen a stronger declining trend. Support is holding. The PMO is now on a Crossover SELL Signal so this area of support is vulnerable. Fortunately we have both the 200-day EMA and December low nearby in case this current level is broken.
GOLD Daily Chart: Gold is fortunate to be holding up as it is given the decline in relative strength to the Dollar. The correlation between the two has disappeared so Gold isn't as tied to the Dollar's movement as it normally is.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners rallied today but we didn't see much expansion in participation under the surface. We could see another rally out of GDX, but the bias is clearly bearish given the Silver Cross Index and Golden Cross Index are below their signal lines and declining.
CRUDE OIL (USO)
IT Trend Model: BUY as of 2/12/2024
LT Trend Model: SELL as of 12/18/2023
USO Daily Chart: Crude Oil formed a bullish engulfing candlestick following what was a bearish filled black candlestick. This bodes well. Based on the rising PMO, positive RSI and rising Stochastics we believe we will see a breakout this time around.
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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