Carl wrote an article awhile back on the rise in mortgage rates. It was titled, "Squeezing the Real Estate Bubble". The rate hike isn't really a pinch on buyer and sellers, it's more like a gut punch. First time homebuyers are being pushed out and sellers are finding that they need to lower prices to attract buyers.
The hope had been that after it topped it would begin to move back down below support at the 2017 low. Instead it did a textbook throwback to the breakout point. With it rebounding off that support level, it implies we will see rates rise higher still.
We 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 buying power shrinks, real estate prices will fall, and sellers will increasingly find that they are upside down with their mortgage.
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 most bullish sectors are those with northeast headings in the Leading quadrant. That would be XLU, XLI, XLB, XLV and XLE. XLRE still looks bullish, it has started traveling eastward which means it will move further into the Leading quadrant.
Interestingly the defensive Staples sector (XLP) is in Weakening and getting weaker with its bearish southwest heading. XLC was making an effort (a slight one) to get into the Leading quadrant. Today it began moving southwest and is now headed to Lagging.
XLY is Lagging, but it is traveling northward toward Improving. XLK was hooking back up to reach Improving but has since reversed course into a bearish southwest heading. It is by far the weakest on the RRG, closely followed by XLF. XLF is turning so it looks slightly better than XLK, but it still is moving westward which is bearish.
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 failure of yesterday's upside initiation climax confirms what we already know...we are in a bear market. We also see that the declining trend continues to weaken. Very soon the short-term rising trend will be tested. The bullish double bottom we spotted developing yesterday is now being tabled.
The RSI topped in negative territory below net neutral (50). This tells us that price is traveling in the bottom of its 2-week trading range. The PMO is flat, but could top soon. Stochastics are encouraging as they do suggest that internal strength is possibly coming back.
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S&P 500 New 52-Week Highs/Lows: New Highs/New Lows were both small. The good news is that the 10-DMA of the High-Low Differential is rising again and is back in positive territory.
Climax* Analysis: Yesterday's upside initiation climax did not result in any follow through today, but today's action was an acceptable pause that could be followed by some continuation of the rally. But as we mentioned earlier, the bear market could pressure price and could result in churn rather than a rally.
*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 are falling once again. They are not oversold and could accommodate more downside. Still we do have some positive divergences visible.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The ITBM/ITVM contracted slightly. There are no positive divergences on those indicators and in terms of a bear market, they are that oversold. We do have a positive divergence of %PMO BUY signals which is encouraging.
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 41% of stocks above their 200-EMA, the GCI should continue to deteriorate.
The intermediate-term bias is also bearish. The SCI is at a low 31% reading and is falling.
%Stocks > 20-EMA is slightly higher than the SCI reading. Unfortunately %Stocks > 50-EMAs is reading the same as the SCI reading which puts the short-term bias at neutral to bearish.
CONCLUSION: We didn't get the expected follow-through on yesterday's upside initiation climax. This is the way it goes in a bear market; we have to temper our bullish expectations. We still see positive divergences on all short-term indicators, so a rally is not out of the question, but given today's response to yesterday's buying, we're more than likely in for some consolidation with a possible trickle up. We would be very cautious opening new positions in growth stocks which led the rally yesterday. It appears that defensive plays in Utilities, Real Estate and Energy are safer trades (Don't forget to set hard stops!). High yields on those stocks also provide a small hedge against inflation.
I am 25% exposed to the market.
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BITCOIN
Bitcoin failed to even test overhead resistance at February/March tops and the 200-day EMA before falling again. The indicators which had been looking up have reversed. The PMO is still above its signal line but is below zero again. Stochastics topped before reaching positive territory above net neutral (50) implying internal weakness. I'm starting to think that the trading range between 32,500 and 45,000 is where Bitcoin will spend much of its time in the intermediate term.
INTEREST RATES
Yields soared higher, pushing Bond prices much lower.
10-YEAR T-BOND YIELD
$TNX was up over three basis points today and should be back at the February top soon. The RSI is positive and the PMO is closing in on a crossover BUY signal. Stochastics should reach above 80 tomorrow if they continue their steep rise.
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 bounced today after reaching the top of the prior bearish rising wedge. The indicators are still positive. I especially like the acceleration of the PMO. Stochastics are iffy but in positive territory above net neutral (50).
GOLD
IT Trend Model: BUY as of 12/29/2021
LT Trend Model: BUY as of 1/12/2022
GLD Daily Chart: GLD formed a bearish black filled candlestick today. Typically those candlesticks precede a decline. The indicators remain strong, but we could see GLD test the rising trend before it rallies higher.
GOLD Daily Chart:
Carl's comments:
"In the last month gold has gone a bit parabolic, and that has resulted in some corrective action. Keep in mind that this is a short-term parabolic and is not as serious as it would be on a monthly chart. The fact that sentiment is still bearish means that people are still not very excited about gold, in spite of recent gains. This favors higher prices, although some further corrective action may take place before the advance resumes."
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's decline appears to be a blip on the radar. The steep rising trend is still intact, but remember those steep trends are very hard to maintain. Participation is still very bullish.
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 has pulled back to support at the 20-day EMA. Like some of the other commodities, Crude Oil moved up too far too fast. The PMO and Stochastics suggest this level of support will not hold. However, the RSI is still positive and has flattened in positive territory. The run up in Crude Oil is cooling, not necessarily over.
A pullback to $70 seems reasonable as well. I would just prefer it not close beneath the 20-day EMA.
BONDS (TLT)
IT Trend Model: NEUTRALas of 1/5/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT is now trading at multi-month lows. The indicators look particularly bearish on the breakdown.
Support is available at $132.
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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Price Momentum Oscillator (PMO)
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