Today's news that China may be beating the US to the punch in artificial intelligence with the new "DeepSeek" platform. It accomplishes the same computations in one tenth the amount of time and doesn't cost as much. This sent AI darling, NVDA into a tailspin. Its companions in the space also fared poorly on the news. Let's look at NVDA and then work out way out to the Technology sector after a peek at the Semiconductor (SMH) industry group.
There were already problems on the chart with a big bearish engulfing candlestick on Friday and a confirmation of weakness by the OBV. The RSI has of course plunged and the PMO not surprisingly generated a Crossover SELL Signal. Correction territory is a 20% decline and NVDA is very close to that. Support was taken out at the 200-day EMA.
SMH also felt the pain given NVDA's capitalization within the group. Strong support was broken at prior lows and also at the 200-day EMA. We didn't get the PMO Crossover SELL Signal but it is close. What is breathtaking is the obliteration of participation within the group. We would be cautious of a possible correction.
Technology (XLK) in general took a giant hit as well. Participation is thinning quickly and the Silver Cross Index topped today. We also have a PMO Crossover SELL Signal. Rotation was clearly moving out of Tech today.
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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: We would certainly call today's decline a Black Swan event at least for Technology. With NVDA crashing, it wasn't a surprise to see the SPY come apart. We do note that trading ended on a positive note so we'll have to watch for 'buy the dip' traders tomorrow.
SPY Daily Chart: Price is now sitting on top of the prior declining trend channel. The RSI is still positive, but the PMO did top with today's big decline.
The VIX punctured the lower Bollinger Band on our inverted scale. That will many times lead to an upside reversal over the next day or two. Stochastics have topped, but are still holding above 80 so there is some internal strength available. Note that the relative strength line to equal-weight RSP is trending lower. This means that mega-caps are underperforming. That is generally a bad condition for the index.
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S&P 500 New 52-Week Highs/Lows: Interestingly, New Highs did expand on today's big decline which we do find positive. The High-Low Differential is also rising nicely. We didn't really see many New Lows.
Climax* Analysis: There were no climax readings today. but SPX Total Volume was 150% of the one-year daily average volume. This is certainly blowout volume, so be looking for a bounce tomorrow.
*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 OVERBOUGHT.
Weakness is still visible as far as the Swenlin Trading Oscillators (STOs) which continue to move lower in overbought territory. The surprise today is that participation of stocks above their 20-day EMA expanded on a deep decline. We did lose some rising PMOs but the indicator is reading at a healthy 79%.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM and ITVM make us feel a bit more comfortable with today's decline as they did not fall. We saw an expansion in the number of PMO BUY Signals on today's deep decline.
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 BULLISH in the intermediate term.
The market bias is BEARISH in the long term.
Participation expanded across the board for stocks above their key moving averages which is saying something considering the market was down -1.41% today. The Silver Cross Index looks very bullish right now. It is above its signal line so there is still a BULLISH bias in the IT. The Golden Cross Index turned up, but remains below its moving average so the LT Bias is still 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: Today's decline was not contagious to the broad market which held up quite well today. The index itself fell victim to NVDA and other mega-caps that corrected today. The decline seems to be targeted as participation expanded across the board on a terrible decline. We saw more New Highs as well. We would be on the lookout for a bounce tomorrow as investors could be ready to buy the dip. We do see Technology as a risky play right now particularly given defensive Consumer Staples and Healthcare led the way today. Stops are still wise as the decline in tech may not be over yet.
Erin is 50% long, 0% short. (This is intended as information, not a recommendation.)
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CALENDAR
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BITCOIN
Bitcoin hit overhead resistance and is headed back to test support again. It has been essentially digesting the vertical rally out of the election. The PMO has turned down toward a Crossover SELL Signal so we would look for it to test support again.
BITCOIN ETFs
INTEREST RATES
Yields fell on the day which could've helped the broad market today since it didn't fall apart. Long-term yields are pulling back right now. Short-term yields are in consolidation mode.
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 now have a bearish head and shoulders pattern on $TNX that implies we will see a breakdown that could take it down below 4.3%. The rising trend still looks good, but this pattern combined with the dropping PMO and Stochastics suggest more pullback ahead.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 11/10/2024
LT Trend Model: SELL as of 12/13/2024
TLT Daily Chart: We have a bullish reverse head and shoulders on TLT. The minimum upside target of the pattern would take price over 91.00 or up to the 200-day EMA. This seems plausible given the reversal in Stochastics and the rising PMO.
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 was down much of the day but it did manage a positive close. We have a short-term declining trend and the PMO is building strength to the downside. Stochastics are below 20. While we see more decline ahead for the Dollar, it did just hit the 50-day EMA and could see a small rally here.
GOLD
IT Trend Model: BUY as of 1/10/2025
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: The flight to safety of Gold did not hold today as it was down over 1% on the day. It is very close to all-time highs and may need to build more momentum before it can break out. The RSI and PMO look positive. Stochastics did top, but overall we see rising relative strength on Gold against the Dollar.
Discounts are elevated, but have come down over time suggesting we do have some bullish sentiment out there. We are looking for new all-time highs but suspect it will take some time to happen.
GOLD MINERS (GDX) Daily Chart: We still have a nice rising trend on Gold Miners and Gold is still mostly bullish. The PMO is rising nicely and though we lost some participation on the decline, it is still holding above our bullish 50% threshold. If Gold slows down as we suspect it will, it will be slow going for GDX. We still see a bullish bias.
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 Oil is correcting and given the new administration's position on fossil fuels and drilling, it is likely that USO will be in decline for some time. The RSI just moved into negative territory and the PMO triggered a new Crossover SELL Signal.
We see a decline ahead that could take price all the way down to 70 or further. Inverse ETFs related to Crude might be worth considering.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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