Carl reminded me today that we probably should be working under "Bear Market Rules". Today's market action was an example of what happens when we expect bullish outcomes in a bearish market environment. They don't generally work out. What are "Bear Market Rules"? I did a workshop on this a long time ago and recently Mary Ellen McGonagle and I talked about them on Chartwise Women.
BEAR MARKET RULES:
- Overbought conditions in a bear market - expect a new down leg.
- Oversold conditions in a bear market - "thin ice", no solid foundation for price bounces.
- Buying into a bear market is dangerous regardless of the bullishness of the chart.
- Expect bearish conclusions to bullish chart patterns.
I'd like to think that my aging short-term memory was the reason that I "forgot" about them, but I have to say, the charts yesterday did look good and this morning's big drop from the rising trend channel after the CPI report was released, price was making its way back to positive territory. Then it fell apart and the problem was exacerbated by St. Louis Fed President Bullard who suggested that he favored a full percentage point rate hike in July. So it was a double whammy to the market. I did talk about this possibility on Wednesday.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
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: XLF is beginning to look jittery, but today's move was in the positive northeast direction. It is still only in Weakening and I continue to see a lot of Bank stocks in my scan results, so I don't think the sector is down for the count. XLV is the only sector in Leading but it is losing steam and could hit Weakening soon. XLK and XLY look the most bullish to me. They are in Improving and XLK could hit Leading tomorrow. XLB and XLI are hooking around toward Improving. XLE, XLU and XLP are in Weakening. XLU and XLP could find themselves in Lagging soon, but XLE has a long way to go before we see it hit Lagging. XLRE and XLC are firmly planted in Lagging and continue to move southwest.
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: NEUTRAL as of 1/21/2022
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: Sadly price failed to breakout today. The CPI and full percentage point rate hike alluded to by Chairman Bullard pretty much put the bulls out of business. A failure to hold the 50-day EMA a second time is concerning. The high negative volume that accompanied this decline is also a problem.
The indicators are now mixed. The PMO topped today and the RSI moved negative. However, Stochastics still look positive above 80.
Click here to register in advance for the recurring free DecisionPoint Trading Room. The most recent recording is below:
Topic: DecisionPoint Trading Room
Start Time: Feb 7, 2022 09:01 AM
Meeting Recording Link.
Access Passcode: February#7
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.
Both the SCI and GCI continued rising...very very slightly. The SCI still remains at an anemic 44%. The GCI is at 70%+ reading which is bullish.
S&P 500 New 52-Week Highs/Lows: New Highs contracted slightly. This actually looks alright given the big decline. The 10-DMA of the High-Low Differential continues to rise and typically that is good for price. So far it has only resulted in churn.
Climax* Analysis: Today we have a downside initiation climax, immediately after the upside initiation yesterday. Confusing? Yes, but this chop reminds us that we are operating under the assumption that a bear market is in progress. Today's climax tells us to look for more downside. The VIX shows that investors moved bearish in a big way, but the reading is still above the moving average on the inverted scale. If the reading is higher we could see acceleration downward.
*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.
I was really liking the STOs, but now we see readings are really moving sideways and that only confirms the churn. Participation has turned down sharply.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
The ITBM/ITVM are still in negative territory, but both continue to contract and leave oversold territory. %PMO crossover BUY signals tipped over today.
Bias Assessment: It is amazing how quickly the tables can turn. Participation is turning bearish after looking quite bullish yesterday. The SCI tipped over and now readings of %Stocks > 20/50-EMAs are about the same as the SCI. The long-term was still looking iffy yesterday even with the GCI turning up. Now that the GCI has turned down, the long-term bias is bearish.
CONCLUSION: What a difference a day makes or an economic report and rumors of larger rate hikes. Is this a matter of "sell on the rumor and buy on the news"? Honestly I think today was a reality check for those of us who were getting more bullish in the short term. It was also a reminder that in a weak or bearish market, bear market rules apply. I would look for more volatile churn, not necessarily the bottom dropping out (although that is possible given the downside initiation climax). I sold my technology positions after only a few days of holding. Currently I am 15% exposed to the market. If my other positions turn bearish, they're gone too... although I think keeping GLD will be good.
Have you subscribed the DecisionPoint Diamonds yet? DP does the work for you by providing handpicked stocks/ETFs from exclusive DP scans! Add it with a discount! Contact support@decisionpoint.com for more information!
BITCOIN
Hmmmm, Bitcoin has turned down at resistance at the 200-day EMA and December lows. However, it is obstinately holding onto the 50-day EMA for support. Stochastics are now less than 80 and the RSI turned down. The PMO is beginning to decelerate below the zero line. I now expect a test of the 20-day EMA.
INTEREST RATES
Yields soared higher. Shorter-term yields are in a parabolic move to the upside. Normally we would look for a crash, but we expect them to rise even further.
10-YEAR T-BOND YIELD
$TNX left yesterday's bearish rising wedge in the dust. We now see a rising trend channel. Indicators are very bullish, but we could see it stall once it reaches the top of the channel.
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 rallied, just in time to keep the short-term rising trend intact. However, we have a bearish filled black candlestick and while the RSI and Stochastics have turned up, the PMO has descended into negative territory.
In the longer-term, we still have a bearish rising wedge developing.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: GLD dropped and left a large wick on a negative candlestick. Still, the PMO triggered a crossover BUY signal yesterday. The very short-term rising trend is still holding up as well.
GOLD Daily Chart: Yesterday's comments still apply:
"There is now a large symmetrical triangle on the $Gold chart. The question is which way it will break. They can break either way, but they are considered continuation patterns so the prior trend is your guide to the breakout. Unfortunately Gold was relatively directionless this year. I am considering the October/November rally as the precursor to this pattern so I would look for an upside breakout."
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners were hit by declining Gold prices and a heavy market decline. They've now lost support at the 20/50-day EMAs. They also were unable to test the top of the symmetrical triangle. There is still a PMO BUY signal in effect, but participation is deteriorating again.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:
"USO is now testing the bottom of a bearish rising wedge. The indicators are softening as the PMO and Stochastics have topped. The RSI is very overbought. The wedge implies a breakdown and USO has been on a long rally out of December lows. If we see a breakdown, I don't expect price to break below the October/November highs, but we could see a test of that level if/when this rising trend is broken."
BONDS (TLT)
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT was rocked as yields soared today. The indicators are not improving.
The next signpost on the way down would be support at $134.
Good luck and good trading,
Erin Swenlin
Technical Analysis is a windsock, not a crystal ball. -- Carl Swenlin
(c) Copyright 2022 DecisionPoint.com
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.
Helpful DecisionPoint Links:
DecisionPoint Alert Chart List
DecisionPoint Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.