We'd like to bring you back to Friday's Weekly Wrap conclusion:
"... we have been waiting for the bull to fizzle given extraordinarily overbought conditions across the board, and now is as good as any for that to happen. Our intermediate-term ITBM and ITVM have topped today, so there is a strong probability that the the decline set in motion by the short-term STO-B and STO-V will continue."
Our DecisionPoint indicators have been overbought for some time. In fact, the market has been flying higher in the face of the Swenlin Trading Oscillators (STOs) as they moved lower. The IT Breadth Momentum (ITBM) and IT Volume Momentum (ITVM) indicators had been rising since their mid-July trough... until Friday. In June, these two indicators also warned us as price began dropping from the consolidation zone to begin June.
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 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® Charts $ONE Benchmark:
Daily: The short-term RRG had already begun to deteriorate. Certainly the aggressive XLK and XLY had tumbled into the Weakening quadrant. Now they are joined by XLRE and XLI.
If you want to see strength, look to XLP and XLE which are both climbing further into the Leading quadrant with bullish northeast headings. Past that, all other sectors are moving south to southwest toward the Weakening quadrant.
Weekly: The intermediate-term RRG looks much more bullish. Every sector has a bullish northeast heading. If this decline continues as we expect, these headings will deteriorate.
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: BUY as of 8/2/2022
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: On Friday, price confirmed the bearish rising wedge as it broke the short-term rising trend. It was accompanied by a downside exhaustion climax which did give us a tiny bit of hope that this was more of a one-off event. Today's gap down dashed all hopes. Price not only lost support at $415, it also dropped below the 20-day EMA. Indicators are seeing extensive damage.
The PMO has topped in overbought territory. The RSI is likely to drop below net neutral (50) into negative territory. The VIX is eye-popping as it plummeted on our inverted scale. We'll have more to say about the VIX shortly.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Lows are visible again. With New Highs pulling back and the addition of New Lows, the 10-DMA of the High-Low Differential is topping.
Climax* Analysis: Today there were unanimous and strong climax readings, giving us another downside exhaustion climax, the second in a row. Today's was much stronger than Friday's, but SPX Total Volume actually contracted, failing to confirm. The light volume is surprising, considering the large gap down in price, so we're assuming that there is more decline in store.
The VIX dropped like a rock on our inverted scale and is puncturing the lower Bollinger Band. Typically that will lead to a very short-term upside reversal. However, we didn't see any panic until today. We also didn't see it close below the Band. We are still vulnerable to short-term downside.
*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 are at their core exhaustion events; however, at price pivots they may be initiating a change of trend.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL.
The STOs have been signaling a market top. However, we admittedly took it with a grain of salt given the last time those indicators contracted, the market only consolidated. They aren't oversold yet. In a matter of days, nearly all of the stocks in the SPX have lost positive momentum. This decline was broad and painful. %PMOs Rising is already getting oversold, but we expect it to move lower.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is EXTREMELY OVERBOUGHT.
As noted in the opening, these indicators turned down on Friday. Given their last top led to a deep decline, we expect this is only the beginning. We noted that the %PMO Crossover BUY signals was also very overbought, and had been for an unusual amount of time. The last two declines finally pushed the indicator lower, but it is still very overbought.
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.
We had been looking at bullish biases in the short and intermediate terms. Even the long term was beginning to look bullish as more stocks found their way above their 200-day EMA. The picture has changed drastically.
The short-term bias is BEARISH: There are far fewer stocks above their 20/50-day EMAs than the SCI which is near 80%. This tells us that the SCI will likely continue lower.
The intermediate-term bias is NEUTRAL but deteriorating given the SCI has topped in overbought territory.
The long-term bias is NEUTRAL. The GCI is at a very low level but %Stocks > 50/200-day EMAs are still higher than the GCI, suggesting the GCI could continue to rise.
CONCLUSION: Our intermediate-term indicators came through for us again. The short-term indicators set the stage as they began topping days ago. This is an unconfirmed downside exhaustion climax. The VIX suggests we could get a rebound too. However, looking at the destruction of all of our indicators, particularly participation, we would look for more decline or consolidation/churn at best.
Erin is 45% exposed but likely to pull that back even further.
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BITCOIN
Bitcoin has formed a near textbook reverse flag after breaking down from the bearish rising wedge. The RSI is in negative territory and declining. The PMO has topped and is likely to move below the zero line shortly. The only possible positive would be Stochastics ticking up in oversold territory.
INTEREST RATES
Yields continue in their rising trends.
The Yield Curve Chart from StockCharts.com shows us the inversions taking place. The red line should move higher from left to right. Inversions are occurring where it moves downward.
10-YEAR T-BOND YIELD
$TNX bullishly broke out of a bearish rising wedge. We consider bullish conclusions to bearish chart patterns as especially bullish. The indicators are strong. The RSI and PMO are rising out of oversold territory. Stochastics are holding above 80 implying internal strength.
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 has now broken to multi-year highs. While it appears price is under resistance on this chart, remember that the July top was a filled black candlestick so price closed at the bottom of that candle. The Dollar is looking stronger. The RSI is getting near overbought territory, but the PMO is on an oversold BUY signal and Stochastics are above 80. Note the increase in volume on today's rally as well.
Here is a 30-year chart of $USD. This breakout is very significant.
GOLD
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: With the Dollar making new multi-year highs, Gold is under severe downward pressure. Today's decline put price below short-term support. Indicators look very bearish; particularly the PMO which topped beneath the zero line and is only hundredths of a point away from a crossover SELL signal.
GOLD Daily Chart: Discounts are very high on PHYS. Investors are clearly very bearish on Gold. Not surprising looking at the technicals. The bullish cup with handle pattern hasn't completely disintegrated, but it is very close.
GOLD MINERS Golden and Silver Cross Indexes: Interestingly, the market and Gold took a beating today but Gold Miners held their own. We still don't favor this group, but there is a chance we could see a rebound off this support level. Given the ugly PMO and participation readings, it will be tough for it to stay above support. Manage any Mining position with care or hard stops.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 7/8/2022
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO is attempting to rally out of its short-term declining trend. Indicators are starting to look more favorable and we know that the Energy sector (XLE) has strong participation readings. We won't get too bullish until that declining trend is broken, but the indicators look very good.
But beware. There is a bearish descending triangle. The pattern is getting stale so it could "drift" out of the pattern, essentially busting it. Support lies in the zone between $67.50 and $70; it looks sturdy.
BONDS (TLT)
IT Trend Model: SELLas of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT is now testing support at the May/July lows. The indicators are ugly. The RSI is falling in negative territory, the PMO dropped below the zero line, and Stochastics are flat, in deeply negative territory.
Yields are showing immense strength. We believe that will continue which leaves Bonds out in the cold. Look for TLT to drop further.
Good Luck & Good Trading!
Erin Swenlin and Carl 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.
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)
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