It was only yesterday that I reported a new Price Momentum Oscillator (PMO) SELL signal on the Nasdaq 100 (NDX). Today the PMO whipsawed back to a BUY signal as it did for its sister sector, Technology (XLK). Should we trust these new signals?
I trust them about as much as I trust my dogs not to bark at the squirrels in my jacaranda tree. The NDX chart still looks sickly. Price is below key moving averages (20/50/200-day EMAs). The RSI, while rising, is firmly in negative territory. The PMO has a margin of only four one-hundredths between it and its signal line so the signal is highly vulnerable to another whipsaw. Relative strength is anemic against the SPX and Stochastics are very negative. I can see price pushing higher, but look for overhead resistance to hold at the early February high.
Looking at the Technology sector on its own, the analysis is the same. The Silver Cross Index (SCI) topped below its signal line and is still in decline. Participation of stocks > 20/50/200-EMAs is seeing some improvement but all are below 50%. I would just warn that we got sucked in twice on the rally in Technology. Is third time a charm? Maybe so, but I need to see more improvement in participation and a solid breakout above the 50-day EMA.
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MAJOR MARKET INDEXES
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 doesn't look that great on the RRG which is more evidence that today's PMO BUY signal is suspect. Strongest sectors are XLV, XLF and XLY. All three are traveling with a northeast heading. I prefer XLV and XLF because XLV is in Leading and XLF should get there soon. Most bearish is obvious, Comm Services (XLC) with its bearish southwest heading in Lagging. XLP is looking interesting as it hooks around toward Leading. XLRE is hooking, but is still firmly in Lagging. XLU, XLI, XLRE and XLB are showing new strength, but are still in Lagging.
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: The PMO is about to trigger a whipsaw BUY signal too. I don't fully trust it. There is quite a bit of overhead resistance ahead for the SPY. However, we do see that the VIX saw much lower readings and that puts it above its 20-DMA. Usually that is good for the market.
The RSI is still negative, but it is rising. We want to see the RSI get above net neutral (50) as that indicators price strength. The RSI is basically telling us where price falls within its 14-day trading range. Stochastics are slowing, but are still declining and have dropped below 50.
S&P 500 New 52-Week Highs/Lows: We didn't see many New Highs or New Lows. The 10-DMA of the High-Low Differential is what I find most important right now. It has topped nowhere near the top of its normal range.
Climax* Analysis: Another climax day, this time an upside initiation climax. The indicators were not unanimous, and SPX Total Volume was not climax strong. We also need to consider that during a bear market, this may prove to be less initiation and more exhaustion.
*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.
STOs continued to fall today and are not oversold. We did see some new momentum enter the market today, but almost half of the SPX have PMOs that are falling.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.
The ITBM/ITVM are now in decline. Unfortunately, they aren't oversold either. We believe this is a bear market. If it is, we know these indicators have a looooong way to go before they're oversold.
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.
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: With the exception of %Stocks > 20/50/200-day EMAs, all other indicators are declining from the 10-DMA of the High-Low Differential to STOs/ITBM/ITVM and most importantly the SCI and GCI. This tempers our excitement regarding today's upside initiation climax. This has a similar feel to the beginning of the last two failed rallies. While we could eke out more upside, overhead resistance is strong. Enjoy any rally we see, but take it with a healthy dose of skepticism. I'm currently 10% exposed to the market.
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Today's rally set up a short-term reverse head and shoulders. The chart is a bit busy right now, but I couldn't see anything that I could take off right now. I talked yesterday about the large head and shoulders that dominates the chart. That appears to be busting as price is nearing the blue neckline of that large H&S. The short-term reverse H&S is bullish. I've marked the shoulders and head with green arrows. The neckline of that pattern is sloping up so a breakout from resistance at the December low would still not confirm the pattern. Right now, price will need to vault the 200-day EMA in order to confirm it. Given the positive indicators, that is entirely possible. RSI is in positive territory and not overbought. The PMO is rising and is now above the zero line. Stochastics reversed in positive territory. I'm bullish on Bitcoin, but if this reverse head and shoulders busts, my outlook will move bearish quickly.
Yields continue to press higher.
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.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar declined but held support at the 20/50-day EMAs. This small drop caused the PMO to halt its rise and the RSI to move into negative territory. Still, short-term Stochastics suggest this is a bump in the road as they are still rising.
When we zoom out, we see that price is in a bearish rising wedge. While we may see more upside, overhead resistance looks strong at $26.
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: GLD failed to overcome resistance and despite the Dollar falling, GLD did too. The indicators haven't been damaged yet and the intraday low landed on support. We expect Gold to continue rising.
GOLD Daily Chart: Price has broken out of the symmetrical triangle. These are continuation patterns, but there really isn't a discernible trend leading into the pattern. We did get the upside breakout and that should mean the rally will continue.
GOLD MINERS Golden and Silver Cross Indexes: GDX also failed at overhead resistance, but it did close above the 200-day EMA. Participation of stocks > 20/50/200-day EMAs tipped over, but sustained little if no damage. We believe Gold will continue to rise and that should push GDX above overhead resistance.
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 broke below the bearish rising wedge. The 20-day EMA is near and will likely provide support. If not, we could see a pullback to the 50-day EMA. Energy has been running hot, it needs some time to cool.
The PMO is trying to top. I like that the RSI is no longer overbought and is still within positive territory above 50. Stochastics are looking questionable. A pullback makes sense here.
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Yesterday's comments still apply:
"Bonds rebounded on Friday, but yields are again rising suggesting more downside ahead for Bonds. TLT has a negative RSI and falling PMO. Stochastics were attempting to rebound, but are now stuck below 20."
The longer-term chart suggests we will test $134, or more likely $132 at the March 2021 low.
Good luck and good trading!
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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