The Technology Sector (XLK) continues to dominate and drive the rally, but fewer and fewer stocks within the sector are participating in the rally. We know this because our Silver Cross Index (SCI), which shows the percent of stocks in the Technology Sector with Silver Cross BUY Signals (20-day EMA is above the 50-day EMA) is only at 54.60%. Almost half of the stocks are not on BUY Signals.
Further, looking at the seven years of data we have on the SCI (chart below), we were unable to find another case where XLK was making all-time highs with a Silver Cross Index reading so low that didn't lead to price weakness. Of course, we owe this dislocation to the magic of cap-weighting. While fewer and fewer Technology stocks are participating in the rally, the mega-cap stocks are the ones making new highs, and driving up the price of every price index of which they are a component. The numerous negative divergences we can see are telling us that this probably won't continue for long.
Conclusion: Participation within the Technology Sector has been fading since the beginning of the year. Mega-cap stocks are keeping prices elevated for now, but that probably won't last.
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MARKET/INDUSTRY GROUP/SECTOR INDEXES
CLICK HERE for Carl's annotated Market Index, Sector, and Industry Group charts.
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: Despite a positive jobs report (fewer new job openings) for inflation, the market only finished unchanged. It'll be interesting to see how the unemployment report is received. The PMO is still rising.
Stochastics are now above 80 suggesting we do have short-term internal price strength. The VIX isn't enlightening today. Notice the steep rising relative strength line to equal-weight RSP. This is evidence that mega-caps are driving this rally.
Here is the latest recording from 6/3:
S&P 500 New 52-Week Highs/Lows: New Highs were about the same and we did see slightly fewer New Lows. The main issue is the declining High-Low Differential.
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.
The Swenlin Trading Oscillators (STOs) both rose today. We had to do a check on the STO-B to make sure. Their lack of movement could be attributed to price being unchanged today. Participation shrank a bit. Both indicators are below our 50% bullish threshold so we don't have much support for this rally.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITVM had reversed higher yesterday, but today it resumed its decline. We are still looking for these indicators to hit negative territory. %PMO Xover BUY Signals did rise slightly and could continue to rise tomorrow given we have a higher percentage of stocks with rising PMOs.
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 NEUTRAL in the short term.
The market bias is BEARISH in the intermediate and long terms.
We are continuing to list the short-term bias as NEUTRAL as we have %Stocks > 20EMA are below our 50% threshold and %Stocks > 50EMA are above the threshold. The Silver Cross Index tipped over today beneath the signal line which is particularly bearish. Both the Silver and Golden Cross Indexes are below their signal lines so the IT and LT Biases are BEARISH.
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: The market hit the pause button today, but it didn't affect the STOs which are still rising. The PMO is also advancing so we can't get that bearish, but we do note that participation is thin and getting thinner based on the falling Silver Cross Index. The mega-caps are clearly steering this ship. If you are looking within the broad market for positions, you'll likely have trouble outside of XXL-cap stocks. Those stocks are still looking fairly good, but when they fall, what little participation we do have will likely fade away. We will keep a close eye on the Magnificent Seven and their brethren. Tomorrow the unemployment report will be released. That could inject some volatility.
Erin is 50% long, 5% short.
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BITCOIN
Bitcoin is again trying to break out, but as we mentioned yesterday, we could see some more consolidation beneath resistance. So far the indicators are holding up. Stochastics moved above 80 today and the PMO is rising above the zero line. We should get a breakout, but resistance is very strong.
BITCOIN ETFs
INTEREST RATES
Long-term yields have broken rising trends and are heading down to support. We see this support level as extremely sturdy and likely to hold for long time.
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 continued to slide lower after breaking the rising bottoms trendline. The 200-day EMA is now here for support, but given the negative RSI, diving PMO and Stochastics, we expect the decline to continue."
BONDS (TLT)
IT Trend Model: SELL as of 3/20/2024
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT paused its rally as the 20-year yield managed a small gain. Yields in general look very bearish so we expect Bonds to continue to rise. The next level of overhead resistance is arriving soon, but given positive indicators, we are expecting a breakout above 94.00.
DOLLAR (UUP)
IT Trend Model: BUY as of 1/23/2024
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: Yesterday's comments still apply:
"The Dollar continues to cling to support, but given the declining trend channel and Stochastics reading below 20, we are looking for a breakdown. The PMO is still falling."
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold is rallying, but we shouldn't forget about the large double top formation. That formation won't be busted until those prior two tops are overcome. Near-term though, we like rising Stochastics and the PMO turned back up today. We notice that we are seeing relative strength improving for Gold against the Dollar. The Dollar looks weak and this should help Gold move higher in the short term.
Discounts are easing which means investors are less bearish than they have been. This could also work in Gold's favor.
GOLD MINERS (GDX): Gold Miners broke its short-term declining trend with today's big rally. However, it didn't do much to improve participation of stocks above their 20-day EMA. Gold is looking more bullish right now so we could see some continuation. Until we see %Stocks > 20EMA rejuvenating, we think the group is still vulnerable.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 5/20/2024
LT Trend Model: BUY as of 2/27/2024
USO Daily Chart: Price has reversed and we saw excellent follow-through to yesterday's rally. Stochastics have turned up but the PMO hasn't yet so there is still a chance overhead resistance will hold at the 200-day EMA.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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