BEAR MARKET RULES APPLY
While the market is not officially in a bear phase, we believe that a bear market has begun and that we should change the way that we approach it. In a bull market, situations usually resolve bullishly, but in a bear market, the opposite is true. Here are some bear market rules to consider (extracted from an article Erin wrote).
- Overbought conditions in a bear market -- expect a new down leg.
- Oversold conditions in a bear market -- "thin ice", no solid foundation for price bounces. Bounces can be bull traps.
- Buying into a bear market is dangerous regardless of the bullishness of the chart.
- Expect bearish conclusions to bullish chart patterns.
- Manage long-term positions as if they were short-term positions.
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SIGNAL CHANGES
We will address the Dollar Index signal change in the Dollar Index section below.
Today, the Nasdaq 100 ETF (QQQ) 20-day EMA crossed down through the 50-day EMA (Dark Cross) above the 200-day EMA, generating an IT Trend Model NEUTRAL Signal. Participation had begun to pick up at the end of July, but that was quickly erased as the index continued its slide. The Silver Cross Index is below our bullish 50% threshold and is falling.
On the weekly QQQ chart there is support from a rising trend line, but the horizontal support at 400.00 looks more substantial.
Also today, the Energy Sector ETF (XLE) 20-day EMA crossed down through the 50-day EMA (Dark Cross) above the 200-day EMA, generating an IT Trend Model NEUTRAL Signal. The Crude Oil trade went south and it has begun to take Energy down with it. Participation is at zero for %Stocks above their 20-day EMA. The Silver Cross Index is falling quickly and is reading below our 50% bullish threshold.
The XLE weekly chart shows a somewhat ragged long-term rising trend. The next support is around 77.50. We have a lower low and a lower high so that support level will likely be tested.
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 our YouTube channel here!
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: The best we can say about today was that we saw a bullish hollow red candlestick. Price did manage to come off the lows for the day, but immense damage was done to price.
Price has now fallen through another support level. The PMO is nearing zero. The VIX is reading the highest it has in years. Sentiment is very bearish and that could lead to a small snapback.
Here is the latest recording from 8/5:
S&P 500 New 52-Week Highs/Lows: New Lows made quite a comeback on today's deep decline. We still saw a few New Highs. The High-Low Differential has topped once again.
Climax* Analysis: Today there were four climax readings on the four relevant indicators, giving us another downside exhaustion climax. As with Friday's downside exhaustion climax, we should be aware that it could result in some churn and/or a bounce. The 14.84 reading on the NYSE DOWN/UP Volume Ratio is especially bearish.
*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 SOMEWHAT OVERSOLD.
Swenlin Trading Oscillators (STOs) are near-term oversold right now which does play into today's downside exhaustion climax. Participation was gutted as the broad market begins to show stress. Rising PMOs are disappearing.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
The ITVM has now hit negative territory and the ITBM dropped noticeably on the decline. PMO BUY Signals are falling to the wayside.
PARTICIPATION CHART (S&P 500): The following chart objectively shows the depth and trend of participation for the SPX 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 now BEARISH in the intermediate term.
The market bias is BULLISH in the long term.
Today the Silver Cross Index dropped beneath its signal line triggering a BEARISH Bias in the intermediate term. It is likely to pick up speed to the downside given the poor participation of stocks above the 20/50-day EMAs. We're also losing participation of stocks above the 200-day EMA. That percentage is lower than the Golden Cross Index so it is vulnerable to more decline after its recent top. It is above its signal line so the LT Bias remains 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: At some point there may be a rip-roaring rally that will tempt the dip buyers, but we think it will be a bull trap as Bear Market Rules suggest. Valuations have gotten out of hand and the AI mania has cooled. The broad market had stepped in to keep things together, but as we suspected, they weren't going to be able to avoid the slide that began with mega-caps. We do think this decline was overdone today as the bullish hollow red candlestick and downside exhaustion climax imply. While a snapback seems likely, bear market rules tell us that oversold conditions are "thin ice" and any rally we see would likely fail to produce a solid uptrend.
Erin is 20% long, 0% short.
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CALENDAR
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BITCOIN
Bitcoin dropped quickly over the weekend and the decline only continued during trading today. Major support has been broken. The RSI is oversold and Stochastics did tick up so we could see a brief rally. The PMO just dropped below zero so any rally will likely be short-lived.
BITCOIN ETFs
INTEREST RATES
Yields are now dropping below horizontal support and look to be headed toward the next level. We expect them to continue falling and test that support level which does look very sturdy.
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
We noticed in the trading room that $TNX was briefly moving higher on the day. That failed and now it has closed beneath strong support at the 2023 low. It is very oversold right now and Stochastics did turn up, but given the backdrop of rate cuts and the falling PMO, we suspect it has lower to go. This is quite a decline and it is due for a snapback. We'll monitor the PMO closely.
BONDS (TLT)
IT Trend Model: BUY as of 6/5/2024
LT Trend Model: BUY as of 7/17/2024
TLT Daily Chart: We saw another breakout on TLT. It did form a bearish filled black candlestick so maybe we'll see a small rebound on yields, but ultimately it looks very bullish with the PMO rising strongly. Stochastics did top so as we said, we may get a small pullback on Bonds in general.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 8/5/2024
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: Today the 20-day EMA crossed below the 50-day EMA generating an IT Trend Model Neutral Signal. It is Neutral because the 50-day EMA is still above the 200-day EMA. We have another bullish hollow red candlestick on a chart which does suggest we could see a rally tomorrow, but indicators are very negative so we doubt any upside will amount to much.
UUP Weekly Chart: The longer-term picture on the weekly chart shows a larger rising wedge formation, which is also likely to resolve downward.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: The Dollar had a terrible day and that should have meant a good day for Gold. Unfortunately the market's decline was contagious. We have a bearish double top that does imply more downside for Gold. Its relative weakness to the Dollar is not helping matters. If the pattern executes with a drop below the confirmation line, the minimum downside target would take price likely to 205.00.
The PMO is falling and nearing a Crossover SELL Signal and Stochastics have topped. We should look for more decline.
GOLD MINERS (GDX): Gold Miners were pummeled today with Gold and the market's declines. Price has dropped beneath the 50-day EMA. It did recuperate somewhat and formed a bullish hollow red candlestick, but we don't think it will turn into much of a rally. Participation has dropped out of the sky and the Silver Cross Index is declining below its signal line. We would look for a test of support at around 32.00.
CRUDE OIL (USO)
IT Trend Model: BUY as of 6/21/2024
LT Trend Model: BUY as of 2/27/2024
USO Daily Chart: Crude Oil also formed a bullish hollow red candlestick, but that is the only bullish characteristic on this chart. The decline has picked up momentum and Stochastics have reversed and are below 20. Support is arriving where we could experience some relief.
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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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