As Carl told me this morning, "Everything that has been up is down" and conversely everything that's been down was up today. We saw Technology, Financials and Discretionary rally strongly while commodities like Corn, Wheat and Sugar, as well as Gold, Crude Oil, Energy and Utilities finished lower on the day. Is the run-up in these areas done? Not likely. All of those areas needed a pullback or pause, they just chose a strong pullback rather than pause. This could give us better entries later as I doubt that prices are done rising.
Looking at the Commodities ETF (GSG) we see a parabolic breakdown. It had all the earmarks. Parabolic breakdowns happen swiftly and are very painful. Usually price will return to the last basing pattern. I see the 50-day EMA and $20 level as a likely stopping point if it continues lower. However, it could pause now given it is about to test the 20-day EMA. The PMO ticked down on this big decline, but other than that, it was mostly undamaged. The run up went too far too fast.
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
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: The daily RRG shows us what a strong rally it was for beat down sectors, XLK and XLY. Both are hooking back up toward Improving. XLF is still headed further into Lagging and doesn't look at all healthy.
Speaking of health, Healthcare switched its heading to a more neutral south east. This would take it into Weakening, but it still has time and I will reveal that I had a ton of Healthcare stocks in my scan results today so I'm not that worried. XLC is moving slowly toward Leading, very very slowly.
XLB and XLP have lost ground and are now in Weakening. They need to change direction or they will find themselves in Lagging. XLRE, XLU, XLE and XLI all look bullish with northeast headings firmly seated in Leading.
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: We now have the makings of a bullish double-bottom. Remember the pattern isn't confirmed until we have a breakout above the confirmation line drawn across last week's top. A breakout there would mean a break from the declining trend and resistance at the 20-day EMA being overcome. That's a lot of work for the SPY to do under bear market conditions but it isn't out of the question.
The RSI is rising, but is still in negative territory below net neutral (50). This tells us that the SPY is still hovering in the lower half of its average two-week price range. The PMO did bottom, but just barely.
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S&P 500 New 52-Week Highs/Lows: New Highs/New Lows were imperceptible today.
Climax* Analysis: We got climactic readings across the board today, but for the most part they were not robust readings. Nevertheless, we have to call it an upside initiation climax. Considering that Monday's climax was a downside initiation, maybe we shouldn't expect the upside thrust to have much endurance.
*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 had turned back up, but are declining again. Right now they are sporting positive divergences, but the second low isn't actually in given both STOs are technically in decline. We do have short-term positive divergences on %Stocks > 20-day EMA and %PMOs Rising which we do like.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The ITBM/ITVM turned up today, very slightly. The readings are in oversold territory. Our concern is that we still need to see the oversold levels that we saw during the end of the 2020 bear market. There is a positive divergence 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.
The long-term bias is still firmly bearish. The GCI reading is well below 70% and declining. With only 43% of stocks above their 200-EMA, the GCI could continue to deteriorate.
The intermediate-term bias is also bearish. The SCI is at a low 32% reading and is falling.
%Stocks > 20-EMA is slightly higher than the SCI reading. Unfortunately %Stocks > 50-EMAs is reading below the SCI reading which puts the short-term bias at neutral to bearish.
CONCLUSION: Now that we have a market bottom, positive divergences were spotted on many of our indicator charts, particularly the short-term indicators. We had an upside initiation climax that suggests we will see higher prices possibly for another day or two. The charts tell me a bear market rally is likely, but bear market rules tell me it may not last. I expect growth stocks will fuel a short-term rally, but they are in their own bear markets and won't likely hold up past the very short term. War beneficiaries didn't do well today. They will likely underperform the market while it is rallying. Ultimately we do expect them to outperform again soon. Proceed with caution if opening new positions in growth areas and continue to babysit all positions regardless of time horizons. There are no "buy and holds"; all positions are short-term in a bear market.
I am 25% exposed to the market.
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BITCOIN
Bitcoin has been a loser of late, but it got a boost today as more aggressive trades prevailed. Price broke above resistance at the 20/50-EMAs as well as above the September/January bottoms horizontal resistance level. The PMO has whipsawed into a crossover BUY signal and is now above zero. The 200-day EMA has been Bitcoin's nemesis. There is also the added news that President Biden signed an executive order to examine the world of cryptocurrencies. The order focuses on six key areas: consumer protection, financial stability, illicit activity, U.S. competitiveness, financial inclusion and responsible innovation. It is uncertain how this will affect Bitcoin prices, but we do see a pullback toward prior resistance currently.
INTEREST RATES
Yields continued higher, putting more downside pressure on Bond prices.
10-YEAR T-BOND YIELD
$TNX is back above resistance and is ready to challenge last month's highs. The RSI is now in positive territory and the PMO has now turned up with Stochastics almost above 50. Look for the 10-year yield to move higher.
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 pulled back today on a reverse island formation. Important support hasn't been breached and the PMO while flattening didn't top. The RSI is falling, but still in positive territory. Stochastics still look favorable. Like other assets/sectors that experienced a run up over the past couple of weeks, it is pulling back.
Overall no real damage occurred. This was needed.
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: Gold pulled way back today. We're not surprised, it was in a near vertical rising trend and those are very hard to maintain for an extended period of time. Like the Dollar, indicators haven't been damaged.
GOLD Daily Chart: Yesterday's comments still apply:
"The discounts on PHYS are very high, but that is likely related to the run-up on Gold prices. PHYS owns physical gold and gold is expensive right now. It makes sense that those purchasing this closed-end fund are paying a discount on what the gold in that fund is actually worth right now. Just a guess as it is hard to imagine that investors are still that bearish on gold."
GOLD MINERS Golden and Silver Cross Indexes: As with other defensive areas of the market, Gold Miners pulled back somewhat. The participation readings on the SCI/GCI and %Stocks > 20/50/200-EMAs remain very strong. This is a natural pullback from overbought conditions. I don't expect it to be protracted, more likely just a test of the 20-day EMA.
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, also a prior winner, pulled back strongly with a nearly 12% decline in one day. This decline did damage the PMO which has now topped in overbought territory. Stochastics dipped just below 80, but aren't that negative. The RSI is now out of overbought territory. It is falling, but is still in positive territory.
Crude Oil was in a near vertical rally like wheat and corn and inevitably required a pullback or pause. This was a deep decline for one day. $70 seems a likely area for churn.
BONDS (TLT)
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:
"TLT lost support at the 20-day EMA after failing to overcome resistance at the 50-day EMA. The RSI has just moved into negative territory and the PMO has now topped well below the zero line. It could be that the flight to Bonds has ceased as more investors pile into Gold or other obvious beneficiaries of the current geopolitical environment."
Good Luck and Good Trading!
Erin Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl 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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