Before today's open the futures were up modestly. Then the CPI report showed inflation still raging, and the futures went down sharply. The market opened down around -2.5% with the headline reading something like, "Market Down; Inflation Still Hot." Prices began edging up until the shorts were squeezed, and the market moved sharply higher. The headlines changed to, "Market Higher; Inflation Still Hot." I'm sure it did not escape you that the reason for both moves was the same. We looked for some news that could have accounted for this huge reversal, but there was none. Ergo, short-covering must be the reason. Maybe this is the start of something big, but the last short-covering rally occurred at the beginning of this month, and it lasted exactly two days.
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® Chart ($ONE Benchmark)
Weekly: Yesterday's comments still apply:
"XLE is the only bullish sector. All others have bearish southwest headings. XLU is only in the Weakening quadrant, but given its swift move southwest, it will likely join most of the others in the Lagging quadrant.
XLF and XLY are the only sectors within the Improving quadrant but that is likely to change by the end of this week."
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: SELL as of 9/8/2022
LT Trend Model: SELL as of 5/5/2022
SPY Daily Chart: Some very solid support was violated at the open, an action that had to have sucked in a ton of short sellers. Not to mention that sentiment was super bearish. One has to wonder if the Fed's Crash Prevention Team intervened to put a floor under prices. At any rate, today's upside reversal gives us a price low we can use to form a bullish falling wedge. Also, the PMO bottomed.
Like the PMO, Stochastics also reversed higher. The RSI is moving nicely upward which makes sense given the huge upside move. Note that the VIX is still below its moving average on our inverted scale. This implies internal weakness.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Lows expanded quite a bit today. While the market closed up, remember that New Lows are registered intraday.
Climax* Analysis: There were strong, unanimous climax readings today, giving us an upside initiation climax. SPX Total Volume gave confirmation at 130% of the one-year daily average. Strong follow through tomorrow seems likely.
*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 OVERSOLD.
Not surprisingly, the STOs reversed on today's big bullish engulfing candlestick.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The ITBM/ITVM are still oversold and today turned up bullishly. We still have less than half of the SPX on PMO crossover BUY signals. If we see follow-through that will likely change significantly given 74% have rising momentum (see above chart).
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 expansion in %Stocks above their 20/50-day EMAs sets the stage for a short-term bullish bias.
The IT bias is very bearish given the SCI topped beneath its signal line and is carrying such a low percentage.
The LT bias is bearish given the GCI is falling and we are not seeing enough stocks above their 200-day EMA particularly given there are more stocks with golden crosses than above the 50/200-day EMAs. This implies it will continue to deteriorate.
CONCLUSION: Today's short covering likely accounts for the giant upside reversal today. It remains to be seen if this can carry through based on prior failures on short covering, but it is at least something for bulls to hold onto. Indicators all were yanked upward on today's upside reversal. Given the upside initiation climax, we do think we'll see some follow-through tomorrow; the question that remains is whether it will be enough for a prolonged rally.
Erin is 10% exposed with 5% hedge.
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BITCOIN
Bitcoin was down heavily but also managed a strong upside reversal. It finished up over 1%, but it wasn't quite enough to recapture support at the 20-day EMA. Indicators are mostly neutral. More than likely we will see some followthrough on this bullish hammer candlestick.
INTEREST RATES
Yields moved up considerably today, moving nearly all of them to new highs.
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 failed to hold above overhead resistance, but it did technically overcome it. Indicators aren't bullish enough to look for a continuation, but it certainly isn't out of the realm of possibility. We favor a drop to test the rising bottoms trendline before a likely breakout.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: We mentioned yesterday that the Dollar was looking toppy. Today it formed a giant bearish engulfing candlestick that implies more downside tomorrow. The PMO triggered a crossover SELL signal and Stochastics topped before reaching 80. All suggest more downside ahead and a likely test of the rising bottoms trendline drawn from the August bottom.
GOLD
IT Trend Model: NEUTRAL as of 5/3/2022
LT Trend Model: SELL as of 6/30/2022
GLD Daily Chart: We would expect to see Gold rally given the Dollar lost ground, but no such luck. The PMO is the only indicator giving us hope, but it is flat and could see another downturn soon.
GOLD Daily Chart: Discounts popped higher, back in historically high territory. Investors are still quite disenchanted with Gold. Additionally, $GVZ is staying below the moving average on the inverted scale which tells us internal weakness is still a problem.
GOLD MINERS Golden and Silver Cross Indexes: Miners rebounded with the market, but still finished down 1.17%. Participation of stocks > 20/50-day EMAs took a big hit this week, but amazingly we still do have some stocks carrying the load. The PMO is trying to bottom above the signal line.
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 formed a giant bullish engulfing candlestick, just like the SPY. Price is now bouncing off important support at the 20-day EMA as well as the 200-day EMA. The RSI remains in positive territory and the PMO bottomed above its signal line. Stochastics aren't on board yet, but a follow-through day will change that. $OVX has pushed through and closed above its moving average another day, so internal strength does appear to be building.
BONDS (TLT)
IT Trend Model: SELL as of 8/19/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: So much for the bullish engulfing candlestick we saw yesterday. With yields moving higher quickly today, TLT was no match and fell almost 1%. Indicators are all negative or flat. We expect TLT to continue lower, although today saw a bullish hollow red candlestick.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
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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