The Fed cut rates another 25 basis points but expressed some hawkishness regarding future cuts. The market didn't like that and began selling off. The Dow Jones Industrials, which today was up following nine straight down days, reversed course and closed down for the 10th straight day.
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 8/14/2024
LT Trend Model: BUY as of 3/29/2023
SPY 10-Minute Chart: The market was doing just fine until the Fed spoiled the party with a more hawkish tone regarding interest rate cuts next year. The market did not like hearing this.
SPY Daily Chart: Today's drop took price to support at the mid-November low and October high. We highly doubt this support level will hold. This looks like the dam is breaking or broke. The PMO sailed lower. The RSI is already getting close to oversold territory in one fell swoop.
The VIX spiked as investors started to feel extra nervous today. This is a puncture of the lower Bollinger Band, but we don't expect to see a snapback. Investors are right to be worried. Stochastics have now entered negative territory so weakness abounds.
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S&P 500 New 52-Week Highs/Lows: New Lows popped today as we would expect. There were negligible New Highs. The High-Low Differential may be oversold, but we would look for it to drop below zero before long.
Climax* Analysis: There were strong and unanimous climax readings on the four relevant indicators. SPX Total Volume was solid, but not at blowout levels. The DOWN/UP Volume Ratios were extreme and indicative of a strong down thrust. So we have a downside initiation climax, which implies that the downside has just begun.
*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 OVERSOLD.
Swenlin Trading Oscillators (STOs) saw a thrust lower putting them at oversold extremes. These conditions can persist in a bear market situation and we believe we could be seeing just the beginning of a serious decline lower. Only 6% of stocks are above their 20-day EMA and only 5% have rising momentum! Again, oversold conditions, but likely to persist.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
We're still going to list the ITBM and ITVM as neutral rather than oversold. They are certainly getting to oversold levels, but we can see they can fall much further. Only 15% or stocks hold PMO BUY Signals, but that is likely to continue lower given only 5% have rising PMOs.
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 BEARISH in the intermediate and long terms.
Participation fell out of the sky today, propelling %Stocks > 20/50EMAs into oversold territory. Oversold conditions are great, but if this is going to turn into a correction or more, those readings could stay oversold. The Silver and Golden Cross Indexes are in decline and are presently 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 Fed has decided on only two rate cuts next year and that put the market in a tailspin. Price plunged after the news. If you've been reading the DPA, you must know that we aren't surprised. We are surprised by the velocity in just one day, but the internals have been terrible for awhile. Now there is no one there to pick up the slack as mega-caps got slaughtered along with the rest of the market. It would be nice if we got a good snapback, but we don't see this as likely given internals are even weaker than they were before. Oversold conditions aren't much to hold onto either as we believe this decline is only getting started. Oversold conditions can persist in a correction or bear market.
Erin is 35% long, 0% short. (This is intended as information, not a recommendation.)
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CALENDAR
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BITCOIN
Bitcoin did not go unscathed despite the almost irrational bullish sentiment. The rising trend is still intact, but today's decline did cause the PMO to top beneath the signal line. Stochastics dipped below 80. It could be time for more high level consolidation, but overall we do believe it will resume its rally after some bumpy trading.
BITCOIN ETFs
INTEREST RATES
Yields propelled higher and are likely headed to test prior 2024 highs. Bonds purchasers have been waiting for higher rates and if the market continues to tank, more will pile into Bonds. Bond funds however, should be avoided as rising rates will depress their prices.
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 is getting ready to challenge overhead resistance and we believe it will find success with a breakout. The RSI is positive and not yet overbought and the PMO is on a new Crossover BUY Signal. Stochastics are above 80. We are looking for the 2024 high to be met.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 11/10/2024
LT Trend Model: SELL as of 12/13/2024
TLT Daily Chart: On Friday the 20+ Year T-Bond ETF (TLT) 50-day EMA crossed down through the 200-day EMA (Death Cross), generating an LT Trend Model SELL Signal. We missed this at the time (and have since adjusted our alert algorithm), but our assessment is that this signal is of little consequence, because bonds have been range bound for the last three months. The 50- and 200-day EMAs are threading and there have been three LT signal changes in the last four weeks. This signal may eventually come to fruition, but it does not justify action at present. It it breaks the support line drawn across the November low, we would expect more downside.
While support is near given very negative indicators, we should not expect it to hold.
DOLLAR (UUP)
IT Trend Model: BUY as of 10/9/2024
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar powered higher which didn't help matters today. The rising trend is intact and the PMO is about to give us a Crossover BUY Signal above the zero line. The wind is at the back of the Dollar right now.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold, often considered a safe haven in times of uncertainty, tumbled on the rising Dollar. The safe haven concept has not been holding that true. Given yesterday's drop out of the rising wedge, we aren't surprised that Gold dropped again today. The PMO has a Crossover SELL signal and it dipped below zero today. Stochastics are now below 20 and you can see relative strength is declining against the Dollar.
There is a support zone around 235, but the very negative indicators suggest to us that this level may not hold. The 200-day EMA may be its next stopping point.
GOLD MINERS (GDX) Daily Chart: Gold is on the ropes and that puts Gold Miners at a distinct disadvantage. Today they lost support. The PMO triggered a Crossover SELL Signal below the zero line and both the Silver and Golden Cross Indexes are below their signal lines and declining. Participation is almost nil. Strong support lies at 32, but we aren't so sure that will hold.
CRUDE OIL (USO)
IT Trend Model: SELL as of 10/17/2024
LT Trend Model: SELL as of 9/10/2024
USO Daily Chart: Crude is stuck in a sideways trading range that is tightening. Indicators are mixed giving us a neutral condition. There is a Silver Cross IT Trend Model BUY Signal nearing as the 20-day EMA is about to cross above the 50-day EMA which gives us a bullish bias so maybe we will see price test the top of the range if nothing else.
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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