The Nasdaq 100 (QQQ) triggered a Price Momentum Oscillator (PMO) SELL signal today as the PMO crossed below its signal line. This is the first of the major indexes to lose its PMO BUY signal, along with the Nasdaq Composite ($COMPQ). Below is the chart of the QQQ with our "under the hood" indicators.
Carl and I have continued to bang the table regarding sickly participation throughout the market. The tech-heavy NDX and COMPQ have seen very low readings. The SCI has turned down at a paltry 56%. The GCI is just under a bullish reading of 70%, but it is declining now. The bias in all three timeframes is bearish given the damage to %Stocks > 20/50/200-day EMAs with readings that are well below the SCI and GCI percentages.
Granted support is nearing at the December lows, but readings on all of these indicators are not oversold yet and could certainly accommodate more downside.
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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: XLK has now entered Lagging and given the decimation of participation within the NDX, it isn't surprising. XLC never really recovered and is already headed toward Lagging. While all of the defensive sectors are in Weakening, we are seeing headings curl back up on XLU and XLP. XLY, XLE, XLI and XLF are traveling with a bullish northeast heading. XLB is the strongest performer. It is the only sector in Leading and it has a bullish northeast heading.
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: The SPY opened lower and then picked up speed to the downside as investors worried about a now hawkish FOMC. Price closed not only below support at the November/December tops, but also below the 20-day EMA.
The RSI is nearing negative territory now and the PMO has topped. Stochastics have also topped. Total Volume was exceptionally high again today and the VIX dropped below its 20-day SMA on the inverted scale as investors are becoming more fearful.
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.
The SCI is above 70% but it is already slowing its ascent. The GCI is bullish at 81% and it is still technically rising which is bullish for the long term.
S&P 500 New 52-Week Highs/Lows: New Highs contracted slightly but is still pretty high for a deep decline. Remember that this indicator lists how many hit new highs during the day. We would expect that the majority of those didn't end up as closing at New Highs. The 10-DMA of the High-Low Differential is still rising, but is getting near-term overbought.
Climax* Analysis: Today's sharp decline was accompanied by multiple climax readings, and it is pretty clear that this is a downside initiation climax.
*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 UP and the condition is NEUTRAL.
STOs are nearing the zero line, but do not look interested in reversing yet. Participation is dropping quickly among stocks > 20-day EMAs. We now have about half of the index showing rising momentum and that number is getting worse.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
It's hard to see, but both the ITBM/ITVM topped today. We also saw %PMO BUY signals drop significantly out of overbought territory. All of these indicators are overbought and have plenty of room to move lower before even reading "neutral". The intermediate-term rising bottoms trendline is likely to be compromised.
Bias Assessment: The short-term bias is neutral, but is getting bearish quickly as participation of stocks > 20/50-EMAs is below the SCI reading. As noted earlier, the SCI is reading at a bullish level above 70%, but it is already slowing its ascent so consider the intermediate-term bias as neutral. Long-term the bias remains bullish as %Stocks > 200-day EMA is about the same as the GCI reading--both are above 70%.
CONCLUSION: A downside initiation climax was easy to call today and given the sharp rise in the VIX, we expect the decline to continue in earnest. In the short-term we've been expecting this. We weren't ready to move bearish in the intermediate term, but with the ITBM/ITVM and participation turning lower, we believe that the intermediate-term rising trend is now vulnerable. There are pockets of strength, particularly in value stocks, but just as a rising tide raises all boats higher, a short- and intermediate-term decline move will move all of them lower. Stay alert and cautious.
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BITCOIN
We'd been expecting a test of $42,500 on Bitcoin. Indicators are very negative and are showing no signs of improvement. It's now time to contemplate a drop to $30,000.
INTEREST RATES
Interest rates continued to fly higher with breakouts now above November highs.
10-YEAR T-BOND YIELD
The 10-year yield managed to rise another two basis points today. Overhead resistance at the May/October and November tops was overcome. The PMO is rising and is not overbought. The RSI is positive and not yet overbought. Stochastics are above 80 and rising. With indicators this positive and not overbought, we expect this area of overhead resistance not to be a problem.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar is basically moving sideways above support at $25 on UUP. Stochastics suggest we will see another run up toward $26, but the PMO isn't on board yet. The RSI is positive but moving sideways as price moves sideways.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: SELL as of 12/3/2021
GLD Daily Chart: There is a short-term bearish rising wedge on Gold now so we would expect GLD to breakdown. Indicators are beginning to turn over. The PMO is still technically rising and the RSI is declining along with Stochastics. I'd like to say that support at the EMAs will hold, but the price pattern and lackluster indicators suggest vulnerability here. Of course a giant decline in the market could attract investors back to Gold.
GOLD Daily Chart: $GOLD saw a golden cross of the 50/200-day EMAs this week, but GLD which we use for our signals never saw that crossover.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners took a hit today and have now dropped below both the 20/50-day EMAs. The RSI is now negative and the PMO is topping below the zero line. The bias is squarely bearish in all three timeframes based on slim participation. Stochastics are also falling. It appeared we might see a sustained rally, but given weak participation, it doesn't seem likely. Next support level is $30.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO finished lower, but set a higher intraday high and a higher intraday low. Carl has annotated a bearish rising wedge formation so while the indicators are still favorable, we should be cautious.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: BUY as of 11/5/2021
TLT Daily Chart: TLT lost important support yesterday. Today we have a bearish engulfing candlestick. Add to that the very negative indicators and we would expect to see support tested at $141 soon.
The 20-year treasury yield has broken out above October and November highs so expect TLT to continue much lower.
Happy Charting!
Erin 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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Price Momentum Oscillator (PMO)
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