The Consumer Staples SPDR (XLP) has been in decline since the beginning of this month. It mustered a small rally last week, but was never able to overcome resistance at the 50-EMA. With today's more than 1% drop, near-term support was lost and price appears ready to test the 200-EMA.
Looking at the indicators, the PMO has hit negative territory and is continuing lower. It isn't oversold yet when compared to the PMO lows from the January and February troughs. "Under the hood" indicators show weak participation. There is a mild bearish bias given the SCI reading is only slightly higher than %Stocks > 20/50-EMAs. However, given the low participation and the descent of the SCI, we believe there is actually a strong bearish bias. The RSI is negative and is oversold, but it is still in decline. It's interesting because in general this defensive sector gets love when the market is moving lower. Just like Gold, it isn't a good hideout right now.
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MAJOR MARKET INDEXES
SECTORS
Each S&P 500 Index component stock is assigned to one, and only one, of 11 major sectors. This is a snapshot of the Intermediate-Term (Silver Cross) and Long-Term (Golden Cross) Trend Model signal status for those sectors.
RRG® Chart: XLY continues to lose relative strength, although it remains in the Leading quadrant. XLE, not surprisingly, is continuing to outpace the market. XLF took a hit today, but still looks good on the RRG. XLI is looking interesting as it gains strength and moves toward the Leading quadrant. XLK is about to hit Lagging. That generally is bad for the market.
CLICK HERE for an animated version of the RRG chart.
CLICK HERE for Carl's annotated Sector charts.
THE MARKET (S&P 500)
IT Trend Model: BUY as of 5/8/2020
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: Today the selling was intense, pulling the SPY down over 2%. Support at the 50-EMA was obliterated. The PMO top below the signal line is especially bearish and the RSI is negative and not yet oversold.
Volume was very high to the downside which is one of the reasons we know today was a climax day. Support is currently holding, but if this downside initiation is on point, the $420 level is the next level of support to watch.
Participation: The following chart uses different methodologies for objectively showing the depth and trend of participation for intermediate- and long-term time frames.
- The Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA).
- The Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA).
- The Bullish Percent Index (BPI) shows the percentage of SPX stocks on Point & Figure BUY signals.
Both indicators are moving lower. The SCI is near-term oversold, but we may see it hit the 40% level before it improves.
Participation turned south quickly today, but readings are now in oversold territory. Of course, there is plenty of room for them to move even lower.
Climax Analysis: Total volume wasn't the only giveaway that today was a climax day. We read it as a downside initiation climax, meaning a continuation of today's selling. All but the Net A-D Volume were outside the normal range. This may not be a prolonged decline given the VIX punctured the lower Bollinger Band on the inverted scale. However, we have seen the VIX stay beneath the bottom Band for a day or two longer. Readings are not as high as they were last Monday which tells me we could definitely see more downside.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERBOUGHT.
The STOs were actually higher today. They have hit overbought territory, but this could be alerting us that this decline won't be prolonged.
Intermediate-Term Market Indicators: The intermediate-term rising market trend has been BROKEN and the condition is OVERSOLD.
The ITBM was lower on the day, but the ITVM is still inching higher. Both indicators are oversold, but if we see continued selling, they also can move much lower.
Bias Assessment: It occurred to us that one of the ways we can measure market bias is to compare the SCI to the percent of stocks above their 20/50-EMAs. When the percentages are lower than the SCI, the market bias is bearish and if they are higher, it is bullish. Any "mechanical" signal requires additional analysis to confirm the numbers.
The market bias has moved bearish. The SCI is nearly 20% higher than participation among %Stocks > 20/50-EMAs.
CONCLUSION: Today we saw a downside initiation climax, suggesting at worst lower prices and at best, sideways churn. The STOs flouted the market by rising but they are overbought. Mixed intermediate-term indicators didn't reveal much. Interest rates are rising and that is positive for Financials. A rising Dollar however, will weigh heavy, particularly on the large-caps that have a more global presence. The tech-heavy Nasdaq 100 fell 2.86% while the small and mid-caps were down about -1.5%. The large-caps are ceding leadership to the smaller cap stocks. I'm not sure they are strong enough to 'lead', especially if the big mega-cap stocks continue to fall and pressure the SPY to move below support. Look for lower prices tomorrow as we wait patiently for an upside initiation based on the VIX puncturing the lower Bollinger Band.
I'm 70% exposed to the market. I have not expanded my exposure, but I am considering some stocks on this current pullback.
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BITCOIN
Yesterday's comments still apply:
"Bitcoin's large rounded top is looking more ominous as price struggles to hold above the 200-EMA and January/July tops. Today it lost its "silver cross" as the 20-EMA dipped below the 50-EMA. The PMO has now entered negative territory and the RSI is firmly planted in negative territory. Best case would be more sideways churn."
INTEREST RATES
Yields are breaking out which will favor Financials but decimate Bonds.
10-YEAR T-BOND YIELD
We have a bullish 10-year yield chart. The only negative on this chart would be the RSI which is getting overbought. Overhead resistance doesn't really arrive until it hits 1.75%.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP finally broke out. The chart is very bullish given the positive and not overbought RSI and the rising PMO on an oversold BUY signal.
This breakout takes UUP to its highest price this year. Given the very large double-bottom pattern, we should see the Dollar continue to rally. This will put pressure on global companies.
GOLD
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold is working its way back to the August low. Given the falling, negative PMO and RSI, we don't expect that support level to hold.
(Full disclosure: I own GLD as a long-term buy and hold position.)
GOLD Daily Chart: Discounts are high, but not high enough to look for a bottom in Gold. Sentiment can get far more bearish as we saw at the November and March lows. We expect Gold to test March lows.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are now testing the bottom of the bullish falling wedge. If it falls out of the pattern, we will see a declining trend channel and not a bullish pattern. Gold's demise has done little to help Miners recuperate. Bulls can still cling to an oversold RSI and an oversold PMO as a possibly setting up a reversal, but so far on 3% are above their 20-EMAs. We need to find a pulse, but so far there is none.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/7/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO dropped almost a percentage point and formed an ominous bearish engulfing candlestick. Any pullback will offer an opportunity for entry. Crude Oil doesn't look bearish, it needs a pause and this likely is it.
BONDS (TLT)
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT is in the midst of a waterfall decline. Given the bullish yields chart, I don't expect to see a reversal or even a pause until the $140 level is tested.
The RSI continues lower and the PMO is nearing negative territory which only compounds the bearish price activity.
Technical Analysis is a windsock, not a crystal ball.
--Erin 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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