As promised we are keeping a close eye on Natural Gas (UNG) which has hit all-time lows this week. Today, Erin presented UNG as a "Diamond in the Rough", the EXTREME rough. Here is the write up she did for ETF Day today. This is a great example of how we do the DP Diamonds reports.
United States Natural Gas Fund (UNG)
EARNINGS: N/A
UNG holds near-month futures contracts in natural gas, as well as swap contracts. For more information, click HERE.
Predefined Scans Triggered: P&F Descending Triple Bottom Breakdown and P&F Double Bottom Breakout.
UNG is up +0.85% in after hours trading. It's interesting because I was really liking it after those two solid rally days. Today's breakdown was somewhat surprising given that, but it shows you that just because a stock is near or at all-time lows, it doesn't mean it is a sure thing. We are still vulnerable to a decline which is why we have a deep stop around 8.9% or $7.49. The RSI is not good, period. The PMO is bottoming, but did flatten on today's decline. I would've liked to have seen a follow-through day today. Stochastics are below 20 but are at a high for the year.
The weekly chart has nothing good to say except that price is at all-time lows. Upside potential is 39.8% if it hits the late 2022 low. My sense is that when UNG finds favor again, people will pile in and it should move higher than 40%. We're not the only ones watching UNG.
(Full disclosure: Carl owns UNG)
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: Today saw an "inside trading day". This means that trading occurred within the prior candlestick. It usually means 'indecision'. Sounds about right. We have confirmed that the PMO is still rising. It was up +0.01.
Stochastics did dip below 80. The RSI is falling but still in positive territory. This appears to be a consolidation phase. The VIX closed below its moving average on the inverted scale and that implies there is some internal weakness.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: In spite of today's decline, we saw an expansion in New Highs. We also saw the 10-DMA of the High-Low Differential rise after its one day decline.
Climax* Analysis: There were two climax readings out of four indicators today. That makes it kind of a coin toss, but we think we should err in favor of a climax day -- a downside initiation climax.
*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.
No surprise to see STOs lower today; they have now entered neutral territory. Rising momentum took another hit, as well as participation given the shrinking number of stocks above their 20-day EMA.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
All of our intermediate-term indicators moved lower. Both the ITBM/ITVM are extremely 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.
The short-term bias is BEARISH.
The intermediate-term bias is BEARISH.
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. The Silver Cross Index is continuing to fall. 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: This pullback to the breakout point is now looking more like a topping formation in preparation for a deeper pullback. All of our indicators are moving lower. Combine this with today's downside initiation climax and we have to move our position to short-term bearish. The intermediate term isn't looking so hot right now either given the declining Silver Cross Index. There are still pockets of strength that can be found in this market. Be selective and be careful with UNG.
Erin is 15% invested. She is likely to purchase UNG tomorrow.
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BITCOIN
Yesterday's comments still apply:
"Bitcoin has formed a rounded top that begs a breakdown. The PMO and Stochastics are definitely in agreement. The RSI is positive and did rise on today's rally. We still expect a breakdown below this support level."
INTEREST RATES
Yields pulled back today giving Bonds much needed relief.
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 is testing the declining tops trending now. A breakout could suggest another trip to test October highs. Why do we think that? We have what looks like an Adam & Eve bullish double-bottom developing. Additionally, price is in a symmetrical triangle. Those are continuation patterns. The prior trend was up so we expect an upside 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 was up slightly. It is having trouble getting above the 200-day EMA. Indicators tell us that we should expect a breakout. The RSI is positive and the PMO looks great as it moves upward on an oversold crossover BUY signal. Stochastics did top, but as long as they oscillate above 80, we are happy.
The declining trend channel is holding, but any decent rally will get a breakout.
GOLD
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: While the Dollar was up, Gold held its ground and was up even higher than the Dollar. We don't see that too often. We think this speaks to the strength of Gold. It is holding support at the 50-day EMA and is actually beginning to trend back up.
GOLD Daily Chart: Price will break below the rising trend channel, but it will likely be caused by a sideways "drift" which is less bearish. The PMO has been in decline, but as noted above, Gold is holding up. Notice relative strength against the Dollar is improving. This is because Gold is defying the Dollar.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are also holding their ground on the 50-day EMA and December tops. However, we would expect a breakdown here based on thin participation and a falling PMO.
CRUDE OIL (USO)
IT Trend Model: SELL as of 2/2/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: USO is rallying strongly but it is definitely range-bound right now. Indicators are looking more bullish. The RSI hit positive territory above net neutral (50) and Stochastics are rising strongly. The PMO has turned up. We see another test of 72.00 ahead. After that, we'd beware.
BONDS (TLT)
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT found some relief today as the 20-year yield fell. It is struggling to hold its rising trend. However, we have to acknowledge that this is looking a lot like an ascending triangle (flat tops, rising bottoms) rather than a symmetrical triangle. That's important because the ascending triangle is bullish. The symmetrical triangle is a continuation pattern and given that the prior trend was down, it is considered bearish right now.
However, looking at the bullish $TNX and TLT's falling PMO, we wouldn't count on a breakout. We will know a more when it tests the rising bottoms trendline. If it happens to rebound before touching it, that would be bullish and suggest a breakout.
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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