The PMO BUY signals keep coming. Today it's the Materials Sector (XLB) that saw a positive PMO crossover BUY signal. While the sector looks interesting, there are few issues. The rally in Gold, Aluminum and Gold Miners has certainly helped this sector, but there are other areas that appear to be holding it back like Commodity Chemicals and Containers/Packaging. You might be better off concentrating on these strong areas versus looking for reversals.
The PMO BUY signal is coming in oversold territory. The RSI just moved above net neutral (50) which tells us it is in the upper part of its two week price range. Stochastics are wiggly, but are positive and trending toward 80. We want to see Stochastics above 80 and stay above 80 as that implies internal strength in the short term.
The Silver Cross Index (SCI) is flat and tells us that a little over half of the sector have 20-EMAs > 50-EMAs or are on "silver crosses". Other components of participation, %Stocks > 20/50-day EMAs shows improvement, but they aren't reading much higher that the SCI. That tells us the bias is neutral to bearish in the short and intermediate terms. Long-term sector participation is somewhat bullish given %Stocks > 200-day EMA and the Golden Cross Index (GCI) are both above 70%, but we need to see more stocks above their 200-day EMA for a bullish bias. I would read the long term as neutral to bullish. Conclusion? I like this sector, but it is hit and miss as far as industry groups so be sure you are in one of the pockets of strength within the sector.
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: It shouldn't surprise us that XLB has moved into Improving given the chart I reviewed in the open. The most bullish sector is XLF, followed by XLV because both are in Leading and have a bullish northeast heading. XLK continues to lose ground, but it is shifting eastward. That would move it into Leading. XLY looks strong as it has a northeast heading within Improving. XLP is showing marked improvement. XLE is in Weakening, but has a long way to go before it is in Lagging. XLI is looking interesting as it moves toward Improving. XLU and XLRE are defensive sectors. They are beginning to show improvement but are still firmly planted in Lagging. XLC is the most bearish of the sectors.
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: Price closed higher on the day and nearly formed a bullish engulfing candlestick. Price remains below the 20-day EMA and really hasn't overcome resistance at the December lows.
The PMO triggered a BUY signal on the SPY today, but overall it remains flat. The RSI is negative and is also flat. For the first time in since mid-January, Total Volume is below its annual average.
S&P 500 New 52-Week Highs/Lows: We saw more New Highs than yesterday which is encouraging, but we also saw more New Lows. As long as the 10-DMA of the High-Low Differential is pointed down, this chart has a bearish bias.
Climax* Analysis: There was no climax today, but yesterday's upside initiation climax inferred that we would likely see continued price advance or some consolidation. As it turns out, today we got a little of each. That is encouraging and offers a chance that the advance will continue. Again, the bear market keeps us from being too optimistic. The VIX is now above its moving average on our inverted scale and that generally tells us the market has some internal strength.
*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 SOMEWHAT OVERSOLD.
STOs are still falling which is bearish in the short term. This is accompanied by rather anemic readings on %Stocks > 20-day EMAs and PMOs Rising.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
The ITBM/ITVM contracted slightly which is generally positive. However, they remain in negative territory and we're not seeing any improvement on stocks with PMO BUY signals.
PARTICIPATION and BIAS Assessment: 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.
Yesterday's comments still apply:
"It is somewhat encouraging to see more stocks > 20/50-EMAs. The readings are also higher than the SCI reading. This normally would suggest a bullish bias, but we know the SCI is still declining and holds a bearish reading of only 42%. While over 70% of stocks have "Golden Crosses", that percentage is shrinking and given there are far fewer stocks with price > 200-day EMA, it will shrink further.
Overall, we see a bearish bias in all timeframes, but the short term is seeing some improvement based on rising participation as reflected in more stocks > 20/50-EMAs."
CONCLUSION: Yesterday's upside initiation climax did lead to somewhat higher prices today. While we do see some bullish signs with the ITBM/ITVM moving up and a few more stocks moving above their 20/50-day EMAs that improvement is negligible. STOs are still moving lower and the SCI/GCI are moving lower as well, leaving us with a bearish bias in all timeframes. We could certainly see higher prices, but we aren't expecting a big breakout move yet. More indicators need to move bullish. There are pockets of strength within the market, but finding them and seeing follow-through is risky business so keep a tight leash on your positions and use caution when opening any new positions. I am currently 10% exposed to the market.
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
The short-term reverse head and shoulders is looking pretty good, but price hasn't attempted to move above the rising neckline (in green) yet. The indicators are still quite positive so we do expect confirmation of the pattern soon.
INTEREST RATES
Yields ticked lower today but remain on strong rising trends or in parabolic advances.
10-YEAR T-BOND YIELD
$TNX is hugging the top portion of a steep rising trend channel. I had considered that the 10-year yield might drop to touch the 20-day EMA and bottom of the channel. Given the positive indicators which include Stochastics turning back up above 80, I expect the 10-year yield to move even higher without having to test the 20-day EMA...for now.
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 never reached the top of the bearish rising wedge before turning lower. That is especially bearish. Add to that a drop and close below the 20/50-day EMAs and we have a recipe for a breakdown. The negative RSI, flat PMO and topping Stochastics appear to agree.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: GLD is making another attempt at breaking above overhead resistance. All of the indicators are positive so we think a breakout is on its way.
GOLD Daily Chart: Should Gold breakout here, there is more overhead resistance ahead at $1920. But as noted above indicators are positive. The RSI is positive and not overbought and Stochastics have pushed above 80 suggesting internal strength. The PMO is on an oversold BUY signal. It bottomed above the signal line which is especially bullish.
GOLD MINERS Golden and Silver Cross Indexes: I like today breakout on GDX, although it does have resistance at $34.50 ahead. I'm not too worried though. We have 100% of stocks with price above both their 20/50-day EMAs. The SCI is accelerating higher. The GCI is at only 20%, but we have more than double that in stocks with price above the 200-day EMA, meaning the GCI should continue to rise.
CRUDE OIL (USO)
IT Trend Model: BUY as of 1/3/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil was lower on the day and USO saw a bearish engulfing candlestick suggesting more downside ahead. The 20-day EMA is close for support, but that new PMO SELL signal in overbought territory is concerning. Stochastics are accelerating downward as well. If you're not exposed to Energy, you might want to bide your time before entering.
BONDS (TLT)
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT was up as the 20-year yield pulled back a bit. This hasn't made the picture any less bearish. TLT is in a declining trend and doesn't look like it is ready to bottom yet. The RSI is rising but is still firmly in negative territory. The PMO is slowing its descent, but wow, Stochastics look particularly bearish right now.
The longer-term chart suggests we will test $132 at the March 2021 low.
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.