It was not a great trading day given the deep declines that reverberated throughout every sector and industry group. Technology (XLK) and Consumer Discretionary (XLY) are aggressive sectors, meaning they are made up primarily of growth stocks and/or reflect consumer spending on non-essentials. A strong market is usually led by these two sectors. When we see Consumer Staples (XLP) and Utilities (XLU) outperforming like they did today, the market is weakening. Better to hide out in the things we "need" versus "non-essentials" or so the thinking goes.
This rotation was on center stage today as both XLK and XLY triggered overbought Price Momentum Oscillator (PMO) Crossover SELL signals. XLK and XLY, along with Communications Services (XLC) have led this market higher and now they are ready to take the market down with them.
Participation of stocks above their 20/50/200-day EMAs and the Silver Cross Index (SCI) are crashing lower on XLK. We have a bearish triple-top that was confirmed today. As is nearly always the case, there was a Golden Cross of the 50/200-day EMAs came in late to the party. If participation keeps slipping, XLK could tumble even lower.
We are seeing similar devastation on participation for XLY too. The only difference is the Silver Cross Index hasn't crashed. However, if participation continues to thin, the SCI will have to move lower.
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.
CLICK HERE for Carl's annotated Sector charts.
THE MARKET (S&P 500)
IT Trend Model: BUY as of 1/12/2023
LT Trend Model: BUY as of 2/9/2023
SPY Daily Chart: We are now waiting for the large bearish rising wedge to confirm. That will happen with a crop below the rising bottoms trendline drawn from the October low. The RSI is now negative and the SPY is on an overbought PMO crossover SELL signal.
What could work in the market's favor tomorrow is the deep puncture of the lower Bollinger Band by the VIX on the inverted scale. Punctures usually precede a price reversal. In this case we could see a day or two of higher prices.
Here is the latest recording 2/13 (no recording on 2/20):
S&P 500 New 52-Week Highs/Lows: New Lows were negligible. We see this as a positive sign given today's deep decline.
Climax* Analysis: Today we had unanimous climax readings on the four relevant indicators, giving us a downside exhaustion climax. The SPX Total Volume was adequate to confirm. Climaxes alert us to extraordinary conditions, and in this case, an exhaustion climax following an initiation climax, there is potential for the decline to end. It is also possible that there will be a pause before the decline continues. We think this is not the end of the decline.
*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.
The STOs spent very little time in positive territory before dropping into oversold territory. There is still plenty of room for them to get more deeply oversold, but near term, they are definitely oversold. We have only 14% of stocks in the SPX with rising momentum. It will take some heavy lifting to turn this around and with Tech and Discretionary looking sickly, we have to wonder who will pick it up.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM/ITVM are in neutral territory and falling lower. They can obviously accommodate more downside. With the decimation of rising momentum, the number of PMO BUY signals has been slashed and is nearing oversold territory.
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 overall market bias is now BEARISH. Every timeframe has problems. We have an anemic number of stocks above their 20/50-day EMAs. The Silver Cross Index is plunging lower. There are fewer stocks above their 50/200-day EMAs versus the number of Golden Crosses. That means the Golden Cross Index will be slipping soon.
CONCLUSION: Today was clearly an exhaustion event. Every sector was down with aggressive sectors XLK and XLY down -2.37% and -3.34% respectively. All of our indicators are moving lower with none of them that oversold. The few bright spots were the overextended VIX and downside exhaustion climax. Unfortunately both of those indicators suggest direction change, but not how long the reversal might last. Evidence is stacked in the bears favor so we would exercise caution.
Erin is 20% exposed.
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BITCOIN
Bitcoin has formed a bearish rising wedge. The indicators are still favorable so price may continue to trend up. The PMO is on a BUY signal, but the margin is very thin between it and the signal line. It is vulnerable to whipsaw. Stochastics are above 80 but turning lower. More than likely we will see it consolidate sideways, but Bitcoin always likes to surprise.
INTEREST RATES
Many yields are making new 52-week highs. We don't see rates letting up yet.
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 broke above overhead resistance at the confirmation line for the double-bottom. The pattern calls for a challenge of the October high. Indicators are strongly positive so we expect a continuation. There is a possibility of a pullback after this breakout, but we expect yields overall to continue rising.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 11/14/2022
LT Trend Model: SELL as of 1/31/2023
UUP Daily Chart: The Dollar is on the rise, but it has formed a bearish rising wedge that would suggest a breakdown ahead, likely at the 50/200-day EMAs. Overhead resistance is arriving at the January high. Indicators are positive enough to suggest it will likely continue to rally when it reaches that level.
The declining trend has been broken.
GOLD
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: GLD has hit support just above the 200-day EMA. Indicators are very negative. The RSI is below net neutral (50) and the PMO continues lower on a SELL signal. Stochastics are in the basement showing no heartbeat.
GOLD Daily Chart: Gold continues to lose strength against the Dollar. Discounts are very high telling us what we already know, investors are bearish on Gold. This does look like an interesting point for a reversal, but until indicators perk up, we would avoid Gold.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners continue to slide. Given the negative RSI, now negative PMO and crashing participation, we wouldn't be looking for a reversal. We could see some consolidation on support at the August top, but with no one under the surface to lead the charge, we believe it will continue lower to 26.00.
CRUDE OIL (USO)
IT Trend Model: SELL as of 2/2/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil continues to travel sideways within a trading range. It failed to overcome the 200-day EMA. The RSI is negative and the PMO is on a new crossover SELL signal. Stochastics are falling. Frustration will continue when trying to trade Energy related stocks.
BONDS (TLT)
IT Trend Model: SELLas of 2/21/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Today the Bond ETF (TLT) 20-day EMA crossed down through the 50-day EMA (Dark Cross) below the 200-day EMA, generating an IT Trend Model SELL Signal. Price is approaching strong horizontal support, as well as a rising trend line. There is a giant bearish double-top and indicators continue to deteriorate. We believe the pattern will be confirmed with a breakdown.
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.
Helpful DecisionPoint Links:
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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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