The Nasdaq 100 (QQQ) has been languishing in a trading channel between $370 and $405. It's about to reach the bottom of the channel so the question is whether this support level is going to be a launching pad. Certainly today's "Dark Cross" of the 20/50-day EMAs suggests more downside ahead.
Participation is lagging with %Stocks > 20/50-day EMAs reading in the 30's. However, that level of participation is near-term oversold. You'll also notice that participation could wane further as true oversold territory lies closer to 10%.
The SCI is below 50% but did tick higher today. The GCI on the other hand has turned lower below its signal line. The PMO has hit negative territory, but is getting somewhat oversold already. Stochastics suggest a breakdown at this price support level. It is very bearish to see Stochastic turn down below net neutral (50).
Bottom Line: Investors are waiting breathlessly to hop back into the sexy Technology sector and growth stocks in general. Looking "under the hood" at QQQ, the ground is not yet fertile enough. There is a high likelihood the 200-day EMA will be tested given indicators aren't oversold enough.
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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MAJOR MARKET INDEXES
For Today:
For the Week:
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.
For Today: 
For the Week:
Short-term (Daily) RRG: XLE, XLF, XLI and XLP are all in the Leading quadrant. XLB is still in Leading, but is losing relative strength and is now headed toward Weakening. We think the sector still has merit, particularly Copper, Gold and Miners. XLY was Improving, but is now headed to either Lagging or Weakening, neither is good. XLC is hooking around back toward Improving. This beat down sector has potential, but pockets of strength are hard to determine. XLU is only in Weakening, but it is moving toward Lagging after already taking up residence in Weakening. XLK is configured the most bearishly in the short term (not surprisingly) and XLV and XLRE are Lagging and getting more bearish as well.
Intermediate-Term (Weekly) RRG: In the longer term, all of the sectors, except XLY and XLK (two most aggressive sectors) are moving in the bearish southwest direction. XLF is hooking around toward Improving/Leading which is good in the intermediate term. XLC is Lagging like XLF, but hasn't gotten a bullish northeast heading yet. Still, it is at least making an effort to reach Improving. All other sectors have bullish northeast headings with the exception of XLB which is moving southeast. That's acceptable since it is firmly planted in Leading right now.
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 market had a strong reversal going into the close today so the SPY actually finished up. However, the candlestick is far from bullish given the much lower high and lower lows on the day. Indicators aren't perking up.
The PMO is in decline and the RSI is negative. Stochastics were hinting at a possible reversal, but turned down into negative territory today. The long-term rising trend channel is still intact, but if price tests the strongest support level at $450, the rising trend will likely be compromised.
SPY Weekly Chart: The weekly chart is concerning. Not only is the weekly PMO falling after multiple tops below the signal line, we have price testing the bottom of a bearish rising wedge. The weekly RSI is still positive but declining.
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.
Readings are above 70% which is bullish, but the GCI is beginning to decline again and the SCI turned back down today.
The following table summarizes participation for the major market indexes and sectors. In general, we consider readings above 70% as bullish, but like all mechanical signals, reviewing the chart is mandatory.
New 52-Week Highs/Lows: New Highs have been trending lower as price declines as one would expect. The continued decline of the 10-DMA of the High-Low Differential is bearish.
Climax Analysis: Another day with high SPX Total Volume, but no accompanying climactic activity. This week we saw an upside initiation climax on Tuesday that saw only one day of follow-through. The VIX is puncturing its lower Bollinger Band on the inverted scale which usually means rally ahead; however, the Bands have tightened significantly, making punctures easy. We'll take them with a grain of salt.
*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 NEUTRAL.
The STO-B turned down today but the STO-V continues to head higher. This could be due to high volume this week. Participation is weak and getting weaker as we only have 40% of the SPX with positive momentum building and only about half of the SPX with price above their 20-day EMAs. Neither of these participation readings are oversold yet.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM and ITVM are mixed, but one thing they do have in common is that they are both overbought. Less than half of the SPX have PMO BUY signals and that number is getting worse. To compound the weakness, that reading is not at all oversold.
Bias Assessment: As noted earlier, the SCI and GCI are bullish given they are above 70%. However, when we compare them to participation, the bias turns very bearish. %Stocks > 20/50-day EMAs are continuing lower and are already well below the SCI reading. Longer term, the GCI is falling as is participation of stocks > 200-day EMAs.
CONCLUSION: This week's rally was short-lived. Even with the rally, participation never really improved suggesting the current decline could continue into next week. On the bright side, we saw buying to end the day and Technology was a recipient of that buying. We need to see better participation in both the SPX and Technology and that has yet to happen. Stay cautious next week. Energy is a winner that should keep on winning. There are also pockets of strength within Industrials and Materials.
Calendar: (1) Options expiration is next week, so we should expect low volatility toward the end of the week. (2) The U.S. markets will be closed on Monday for Martin Luther King Day.
Erin is 30% exposed to the market.
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BITCOIN
Bitcoin reversed bullishly off support at the September low, but failed to overcome resistance at the 20-day EMA and December low. Indicators have perked up suggesting we will see another run at resistance next week.
INTEREST RATES
Interest rates pulled back this week, but turned higher off support at November highs. Rising yields should be expected given the Fed's hawkish stance on raising rates in March.
10-YEAR T-BOND YIELD
After hitting support at the October/November highs, yields reversed higher and are attempting to recapture highs above the March top. Indicators are bullish with the PMO accelerating higher and Stochastics reversing just below 80.
MORTGAGE INTEREST RATES (30-Yr)**
**We want to watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. (See table.) As mortgages are forced to shrink, real estate prices will have to fall, and many sellers will increasingly find that they are upside down with their mortgage.
--
In the interest of sparing our readers the pain of watching grass grow, we haven't shown this section for several weeks; however, the 30-year mortgage has been moving up sharply and it jumped to 3.45% this week. This results in a 10% reduction in the size loan a nominal payment of $2015/month can service versus the loan amount at the historical low rate of 2.65% on 1/6/2021. Rising rates will eventually torpedo the real estate market.
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 broke down this week but is attempting to recapture the intermediate-term rising bottoms trendline. The PMO just moved into negative territory; however, the RSI and Stochastics are rising out of oversold readings.
UUP Weekly Chart: On the weekly chart we can see this week's drop is taking price toward strong support at the early 2021 high. The weekly PMO has topped which doesn't bode well, particularly when added to a daily PMO that is now below zero.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GOLD Daily Chart: The bearish move on the Dollar this week helped Gold, but ultimately Gold is stuck in a large trading range between $167 - $171 for GLD. Stochastics have tipped over but aren't particularly bearish yet. The PMO is flat but on a BUY signal.
Overhead resistance is strong so while we remain bullish on Gold, it will likely take its time before breaking out.
GOLD Weekly Chart: The weekly chart is mostly neutral. The weekly PMO is flat and the weekly RSI is oscillating around net neutral (50). Discounts are still elevated suggesting investors are not yet bullish on Gold.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners started the week strong but fizzled out. The SCI is mostly flat and participation numbers, though moving lower, are still higher with readings around 30%. We would look for support to hold at $30 given the PMO is still on a BUY signal and Stochastics are in positive territory. Keep a tight leash on your mining positions.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO formed a short-term bearish rising wedge, but broke out anyway. The RSI is now overbought, yet we know it can remain overbought in a strong rally continuation based on the October RSI. Volume is confirming the breakout with rising OBV bottoms. Stochastics are strong staying easily above 80.
Energy is a strong sector and Crude Oil is one of the reasons why. This is a breakout to new 52-week highs. Look for higher prices.
USO/$WTIC Weekly Chart: USO is now faced with strong gap resistance while $WTIC is about to attempt a move to multi-year highs. The weekly PMO is about to trigger a crossover BUY signal and the weekly RSI is rising and not overbought. We expect to see breakouts.
BONDS (TLT)
IT Trend Model: NEUTRAL as of 1/5/2022
LT Trend Model: BUYas of 11/5/2021
TLT Daily Chart: With the 20-year yield moving lower most of the week, TLT bounced. However, after reaching overhead resistance at $144, it was turned away. The RSI has yet to move into positive territory. The PMO nearly turned back up and Stochastics had begun to rise. Stochastics tipped over today in negative territory and the PMO is still falling.
The next level of support won't arrive until $139.
TLT Weekly Chart: TLT is at a decision point on the weekly chart as it hugs the long-term rising bottoms trendline. We would expect a breakdown given the new IT PMO crossover SELL signal today and the still negative weekly RSI.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & Erin 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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