After yesterday's final hour buying spree, the market spent the day in the red with a late day failure to reach positive territory. Notice that the head and shoulders on the 5-minute SPY chart didn't fulfill its minimum upside target. That is bearish. Another bearish feature is the breakdown of the rising trend drawn from yesterday's low. Currently the 5-minute PMO is in decline on a SELL signal and the 5-minute RSI is in negative territory and not oversold.
Two more sectors had "dark crosses" today. That means that the 20-day EMA crossed below the 50-day EMA. The signal are IT Trend Model Neutrals. It is "Neutral" because the 50-day EMA was above the 200-day EMA when the crossover occurred. Had it been beneath the 200-day EMA that would have been a SELL signal. Neutral means fully hedged or in cash.
XLI dropped below the 200-day EMA but as with yesterday, it closed above it. The chart doesn't look favorable given the negative RSI and now negative PMO. Participation is oversold. However, the SCI and GCI could move lower given the bearish bias (lower participation percentages compared to the SCI/GCI). Relative strength is actually rising against the SPY, but we see that it is just moving lower at a slower pace. Stochastics are rising out of oversold territory. This is a good place to see a reversal, but we don't believe the market is done declining.
Real Estate (XLRE) also triggered an IT Trend Model "Dark Cross" Neutral signal. XLRE is holding support at the 200-day EMA. As with XLI, it is outperforming the SPY.. but not really a positive given the decline out of the December top. The RSI is turning up out of oversold territory and Stochastics are rising, but participation is still slim which keeps the bearish bias in all timeframes despite the SCI and GCI reading above 70%. This is a defensive sector so I will be watching to see if money finally rotates its way.
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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: Yesterday's comments still apply:
"XLE is still the winning sector. While it is rotating southward, like an oscillator, it eventually has to make the turn. XLF is nearing Weakening. The most bullish would be XLC, XLU and XLP which are in Leading and traveling with a bullish northeast heading. The most bearish is XLY which is not only in Lagging, but has a bearish southwest heading. XLB just dipped into Weakening. XLI is holding within Leading, but is now following XLB's lead toward Weakening. XLV, XLRE and XLK are Lagging, but showing new relative strength as they move toward Improving."
RRG® charts show you the relative strength and momentum for a group of stocks. Stocks with strong relative strength and momentum appear in the green Leading quadrant. As relative momentum fades, they typically move into the yellow Weakening quadrant. If relative strength then fades, they move into the red Lagging quadrant. Finally, when momentum starts to pick up again, they shift into the blue Improving quadrant.
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 10/18/2021
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: On the bright side, we saw a higher intraday low than yesterday, but price has now closed below the 200-day EMA for the first time since 2020 as price came out of the bear market low. That is some serious support that was lost today.
Normally I would be looking for a strong rebound off this level of support. Stochastics are trying to rise out of oversold territory; however, the indicators are still very negative and we had elevated Total Volume on the sell-off today.
PARTICIPATION: The following chart objectively shows the depth and trend of participation 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.
As rough as the market has been, the SCI and GCI are nowhere near oversold. The SCI is now at a bearish 52%. The GCI is still bullish because the reading is above 70%, but it is deteriorating and based on the participation numbers you'll see further down. That reading will be moving lower.
S&P 500 New 52-Week Highs/Lows: There were nominal New Highs and New Lows today. The 10-DMA of the High-Low Differential is nearing oversold territory and is decelerating which is somewhat encouraging.
Climax* Analysis: No climax today. The VIX closed back above the lower Bollinger Band on our inverted scale but spent most of the day below it. Typically this would indicate a rally in the next day or two, but we can see how that worked out for us last week.
*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 indicate either initiation or exhaustion.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is EXTREMELY OVERSOLD.
The STOs are mixed today with the STO-B rising slightly and the STO-V continuing lower. There's no denying how oversold these indicators are. One would expect a rally out of these conditions, but remember, these indicators can relieve oversold conditions with consolidation or a pause. It doesn't need to be a big rally. We are expecting churn at best.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
We are finally beginning to see somewhat oversold conditions on the ITBM. The ITVM still has plenty of downside left to go. We now have only 13% of SPX stocks with PMO crossover BUY signals. Certainly that is oversold. However, we've seen lower readings while in the midst of the 2020 bear market and those oversold conditions persisted for about a month.
Bias Assessment: Yesterday's comments still apply:
"There is still a strong bearish bias in the short and intermediate terms. Participation of stocks > 20/50-day EMAs is far lower than the SCI. This means the SCI will continue to see damage. The long term has a bullish bias based on the GCI being above 70%, but we know there are fewer with price > 200-day EMA. This means the GCI will continue to move lower. That is what is causing the long-term bias to be bearish."
CONCLUSION: We saw zero follow-through on yesterday's final hour rally. Price is now at a strong support level at last September's lows, but seeing a close beneath the 200-day EMA tells me not to expect much. While short-term indicators are very oversold, we will be lucky if this level of support holds. If it does, we expect price to churn sideways, not rally strongly. That will relieve oversold conditions in the short term. The intermediate term is still not oversold enough. I have tightened the stops on my remaining positions with the understanding that we could see a bounce here. If we don't, I'm protected. If we do see higher prices, I'll be watching for an opportunity to sell into strength. Either way I'm moving toward 5% exposure.
I'm 15% exposed to the market.
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BITCOIN
Yesterday's comments still apply:
"Bitcoin is trying to bottom before hitting strong support at $30,000. Indicators are improving, but the PMO is still technically in decline. I am watching for a bottom here, I just think it will need to hit that $30,000 number first. When it does, that is when I expect to see a Bitcoin recovery as bottom fishers reenter."
INTEREST RATES
Yields moved higher today. The 30-year yield hasn't yet broken above October highs, but we expect it to given the 20-year yield had no problem doing so.
10-YEAR T-BOND YIELD
$TNX bounced off the 20-day EMA and held onto its short-term rising trend. It is now up against gap resistance. Based on Stochastics, we could see another test of the 20-day EMA, but the RSI remains positive and the PMO is decelerating. I expect it to hold above 17.0.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP broke its short-term declining trend, but formed a bearish filled black candlestick. The PMO is flat and Stochastics have stalled. The RSI is neutral. The ground isn't fertile for a strong rally here, but it isn't negative enough to look for a breakdown of the rising trend.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: GLD rallied and has now closed the November gap. Indicators are very bullish but we do need to be mindful of a bearish rising wedge developing. Discounts rose today suggesting investors are already losing faith.
Full Disclosure: I own GLD.
GOLD Daily Chart: $GOLD looks very good on the one-year chart. We have a saucer shaped basing pattern and price is making its way back up to test $1880. As noted above the indicators are bullish and in $GOLD's case, we have a rising trend channel (although if you only take January into account, that would be a wedge). I like Gold and expect it to move higher. It's one of the few positions I'm leaving open in my portfolio.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's bullish hammer candlestick played out as expected with a gain today. We have a bullish bias in all three timeframes on GDX right now. %Stocks > 20/50-day EMAs is higher than the SCI and %Stocks > 200-day EMA is higher than the GCI. I'm bullish on Gold and believe this is one of the few industry groups out there that are showing strength and rising momentum.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: I said yesterday that I expected support to hold at the October high. Energy is one of the few bright spots out there and with USO looking bullish, it will likely continue to outperform. Portfolio positions in Energy should hold up, but keep an eye on their individual charts. While Oil may be rising, individual stocks are subject to the market winds and those are blowing downward.
BONDS (TLT)
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELLas of 1/19/2022
TLT Daily Chart: Yesterday's bearish engulfing candlestick fulfilled as expected with a decline today. Overhead resistance is strong here. The RSI is negative and the PMO is still flat. Stochastics are rising and just managed to get above 50. Unfortunately, yields are likely to rise higher and that will prevent a breakout.
Of course if TLT does rebound here that would form a bullish reverse head and shoulders. Again, yields should continue higher so we remain bearish.
Happy Charting!
Erin Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
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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