Today the Communication Services (XLC) sector had a negative crossover on the Silver Cross Index (SCI) in very overbought territory. This sector has been on fire this year but it seems it is finally exhausting its move. Remember, the Silver Cross Index measures how many stocks within the sector have a 20-day EMA above their 50-day EMA. The sector isn't in terrible trouble. This decline brought the RSI out of overbought territory and the PMO is still rising in spite of the decline. However, the reason we use an indicator like the SCI is to measure internal strength or weakness within. A negative crossover could be an early warning that the sector is ready for a short-term pullback.
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: SELL as of 5/5/2022
SPY Daily Chart: Don't let your eyes fool you, this is not a rising trend channel, it is an adjusted version of the prior rising wedge. These are negative chart formations that beg for a breakdown.
If the short-term rising wedge weren't enough, we have a longer-term rising wedge. Indicators aren't breaking down completely. The RSI remains positive and the PMO is still rising despite the decline. Stochastics remain above 80. The VIX is flirting with moving below its moving average on the inverted scale which would imply internal weakness. We generally look for penetrations of the Bollinger Bands themselves, but given they are tightly squeezed together, punctures won't be as meaningful. We think following its location with respect to the moving average makes more sense.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: The negative divergence between price tops and New Highs has been alleviated in the longer term.
Climax* Analysis: There were no climax readings today. Total Volume was rather thin on today's 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 UP and the condition is NEUTRAL.
The STOs diverged today. The STO-B continued to contract while the STO-V ticked slightly higher. The biggest problem with this chart are the negative divergences that continue to persist on all of these indicators. We note that less than half of the index have rising momentum. That will make a rally more difficult.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM/ITVM are both overbought and both fell again today. We haven't lost too much ground in terms of PMO BUY signals, but there is a strong negative divergence between price and %PMO BUY signals. The ITBM also holds a negative divergence.
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 short-term bias is BEARISH.
The intermediate-term bias is NEUTRAL.
The long-term bias is BULLISH.
Participation has shrunk in the near term with now a lower percentage of stocks above their 20/50-day EMA than those with Silver Crosses. While the SCI has turned down, it is still at a bullish level. We have a higher percentage of stocks above their 50/200-day EMAs than those with Golden Crosses (as represented by the Golden Cross Index).
CONCLUSION: The market entered a bull market last week. The market, in textbook fashion, is now pulling back toward the breakout area. This has hurt some of our indicators and not fazed others. The question now becomes whether it will be a hiccup or the beginning of another down leg. If we are in a bull market, we have to think of this as digestion in the short term. However, the longer-term negative divergences and rising wedges are caution flags that it could morph into something more serious. Stops should be honored.
Erin is 18% invested.
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BITCOIN
Bitcoin has formed a rounded top that begs a breakdown. The PMO and Stochastics are definitely in agreement. The RSI is positive, but it has dropped quite a bit. It is likely only positive because it got so overbought. We don't like Bitcoin right now.
INTEREST RATES
Yields are popping higher, Bonds will begin a march southward.
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
Friday the 10-year yield rallied strongly. Rather a digestion day, it moved even higher. The short-term declining trend is about to be tested. Given the newly positive RSI and PMO crossover BUY signal alongside sharply rising Stochastics tell us to expect a breakout.
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 springing higher, but was stopped by the 200-day EMA. The indicators are in agreement that we should expect the Dollar to successfully overcome overhead resistance at 28.25.
We nearly saw a breakout from the declining trend channel.
GOLD
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Gold is breaking down as the Dollar rallies. However, today it didn't fall even though the Dollar rallied strongly. The 50-day EMA holding up as support so far. The reverse correlation with the Dollar is strong so today's divergence leaves us hopeful that the pullback won't be too painful.
GOLD Daily Chart: The PMO, RSI and Stochastics are very negative so we have to expect more decline. More decline will mean the breakdown of the rising trend channel. The PMO is very overbought so this is an excellent opportunity to clear those conditions.
GOLD MINERS Golden and Silver Cross Indexes: After Friday's disastrous decline, participation dove lower. We now only have 3% above their 20-day EMA. While the Silver Cross Index is at a very bullish reading, it will also begin to dive lower as 20-day EMAs begin to sink below 50-day EMAs. For now, it is holding support.
CRUDE OIL (USO)
IT Trend Model: SELL as of 2/2/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: We are bearish on Crude. We have to be given the PMO's reaction to the current decline. The PMO sunk into negative territory today. Stochastics and the RSI are rising, but not enough to overcome their bearish readings.
Strong support is available just below 62.50.
BONDS (TLT)
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Given the spike in interest rates, we are expecting a price decline on TLT that will test the rising bottoms trendline. TLT will likely lose that rising trend as the PMO just gave us a crossover SELL signal. To make matters worse, Stochastics are diving lower.
TLT failed to breakout from the symmetrical triangle. These are continuation patterns so it would've been a surprise if that breakout had led to more upside. Why? The prior trend that was in play before the symmetrical triangle developed was down so that trend should be "continued".
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.
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