We have been monitoring the relative strength line of equal-weight RSP to the SPY. This relative strength line tells us whether mega-caps are in charge or if they are losing ground. Currently, you can see that RSP had a deep decline and that was when the relative strength line began to decline in earnest. Now we have a different situation, RSP is gaining strength relative to the SPY. This means that mega-caps are beginning to lose their luster. With ten stocks making up 40% of the SPY based on cap-weighting, this rising relative strength line tells us these stocks are under fire. You can see in July when RSP was outperforming, the SPY had a deep decline. We could see something similar.
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 PPI report was released today and it did show a slightly smaller rise in inflation than was estimated. This helped the market open on a high note, but ultimately it couldn't make up its mind which direction it wanted to go. We would've seen a decline today except for the strong finish in the last ten minutes.
SPY Daily Chart: We're monitoring what could be the beginning of a third low in a possible triple bottom formation. It isn't textbook as this third bottom is below the prior two, but it is worth watching. We have found a new declining trend channel. Price could make its way to the top of the channel before we see a bigger breakdown as the rounded top implies. We also saw a bearish filled black candlestick today.
The PMO is now in decline below the zero line so we are seeing new weakness, not just diminishing strength. Stochastics dropped below 20 and the VIX remains below its moving average on the inverted scale. All of this implies internal weakness.
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S&P 500 New 52-Week Highs/Lows: Not much to report on New Highs/New Lows. The High-Low Differential remains in decline below the zero line which is a sign of weakness.
Climax* Analysis: There were no climax readings today. We think that the last two days of price action represent churn following Friday's downside initiation climax, and that there is potential for the decline to continue.
*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 (STOs) are mixed today. The STO-B did make it to positive territory again, but the STO-V is still in decline. We did see some improvement to both %Stocks > 20EMA and %PMOs Rising. More than half of the index now have rising momentum. That could prevent a deep decline.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERSOLD.
Both the ITBM and ITVM rose today. They are in oversold territory. This is a good sign as is the addition of more PMO BUY Signals.
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.
We now have a rising trend on %Stocks > 20EMA that is encouraging. However, we don't see the same on %Stocks >50/200EMAs. We only have 38% above their 20-day EMAs so it isn't what we would call strong. On the bright side, with more stocks above their 20-day EMAs, the Silver Cross Index could begin expanding. A bottom on the Silver Cross Index would be welcome, but we do need to see more stocks above their 50-day EMAs. The Silver Cross Index and Golden Cross Index 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: We are seeing more stocks with rising PMOs and PMO BUY Signals. Participation is expanding slightly. However, with the PMO indicating weakness, we can't get too bullish. Today saw a filled black candlestick that implies a decline tomorrow. We still have a bearish bias in the IT and LT and most of the Bias Table above is red. There is still plenty of weakness here, especially given the weakness in the mega-caps right now. We think the market is still very vulnerable to more decline, but we are encouraged by the broadening participation. More turbulence should be expected with the release of the CPI tomorrow.
Erin is 30% long, 0% short. (This is intended as information, not a recommendation.)
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CALENDAR
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BITCOIN
Bitcoin is clinging to support, but we do have a bearish rounded top. It still looks very vulnerable to a breakdown here. The PMO is still technically declining. On the bullish side, we do now have a positive RSI and rising Stochastics. For now we expect more sideways action along this support level.
BITCOIN ETFs
INTEREST RATES
Yesterday's comments still apply:
"The Bond market certainly believes inflation will be sticky as yields continue to rise strongly. Long-term yields have overcome 2024 highs in some cases 2023 highs. We are expecting them to continue to rise. Very short-term yields will likely stagnate on the rate cuts already seen by the FOMC."
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 paused its rally today, but remains above support at the April top. It is time for a pause given the RSI is so overbought. The PMO decelerated on today's decline. Stochastics are still very strong. We would look for $TNX to hold this support level and work its way higher soon.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 11/10/2024
LT Trend Model: SELL as of 12/13/2024
TLT Daily Chart: Yesterday's comments still apply:
"The 20-year yield is angling higher and that is punishing TLT. We don't see any relief ahead given the bullish setup on yields in general. Bond funds are likely to continue moving lower. Indicators are highly negative, particularly Stochastics which have taken up residence below 20 indicating extreme internal weakness."
Support is arriving at 84.50, but it doesn't seem likely that it will hold that level given how bullish yields look.
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 finally saw a strong decline. It is traveling in a bearish rising wedge that does imply a breakdown of the rising trend. There isn't much weakness on the chart's indicators yet. The PMO is very flat above the zero line and that is a sign of pure strength. Stochastics are confirming. We're looking for an eventual breakdown, but it could have a bit more steam.
GOLD
IT Trend Model: BUY as of 1/10/2025
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold took advantage of the decline in the Dollar and rallied nicely. It is still essentially range bound, but indicators are bullish and suggest we'll see a challenge of the prior two price tops. We also have a gently rising trend intact.
Interestingly, the correlation between Gold and the Dollar is positive right now. This means that they can travel in concert rather than in their usual reverse fashion. The Dollar still looks fairly healthy so this could be a good thing. However, we are monitoring that bearish rising wedge on the Dollar and that could mean it will weaken soon. We'll want the correlation to return to normal soon given our longer-term bearish outlook for the Dollar.
GOLD MINERS (GDX) Daily Chart: Gold Miners took advantage of the falling Dollar and rising Gold to rally strongly. Participation has really firmed up. We'd like to see the Silver Cross Index rise further. It should given the new participation. The PMO is rising and the RSI is back in positive territory. We think the declining trend will soon be busted.
CRUDE OIL (USO)
IT Trend Model: BUY as of 12/24/2024
LT Trend Model: BUY as of 1/10/2025
USO Daily Chart: Crude pulled back today and there is a good chance it will take this opportunity to consolidate this strong rally on the gap up. That should get the RSI out of overbought territory. The PMO is rising strongly so we should see the rally pick up again after a pause.
It is nearing the April high, but what is left after that? We have to look at the weekly chart.
Weekly Chart: We can see that this overhead resistance level has been the area where Crude fails. It is acting very bullish on the daily chart and the weekly PMO is rising so we are actually looking for a breakout and a test of the 2022 high. We would say that with the new administration arriving soon, 'drill, baby, drill' may happen sooner rather than later and that would likely put a stop to this rise in Oil prices. That's more long-term, but certainly something to keep in mind.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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