The CPI numbers released today were not good enough to spark a big rally, but they were not bad enough to spook investors either. So far. The following is an excerpt from the Bureau of Labor Statistics report. Note on the chart that the month over month change expanded after two months of contraction.
The all items index increased 6.4 percent for the 12 months ending January; this was the smallest 12-month increase since the period ending October 2021. The all items less food and energy index rose 5.6 percent over the last 12 months, its smallest 12-month increase since December 2021. The energy index increased 8.7 percent for the 12 months ending January, and the food index increased 10.1 percent over the last year.
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: Price was almost unchanged today. The very short-term declining trend is intact. As are the short-term and intermediate-term bearish rising wedges. On the bright side, the PMO is rising again.
The RSI tells us that price is not overbought and is near the top of its prior two week trading range which is good. Stochastics have turned back up above net neutral (50). It is very interesting that the VIX popped higher on our inverted scale. Between the VIX being back above its moving average and Stochastics turning up, some internal strength is being detected. The large rising wedge (annotated in green) doesn't inspire confidence.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: New Highs were visible and no New Lows were triggered on today's tick lower.
Climax* Analysis: There were no climax readings today. The market tried to follow through on yesterday's upside initiation climax, but a day of rest prevailed.
*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.
Just as these indicators had turned up, they turned right back down. It was a negligible drop for the STOs, but a drop nonetheless. We had 50% of stocks with rising momentum yesterday, that was slashed to 38% today.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
Both the ITBM and ITVM moved lower today. With the percentage of rising momentum stocks being only 38%, we know that the %PMO BUY signals indicator will continue lower. The damage wasn't done today, but we should be prepared for the deterioration to continue.
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.
We're moving our short-term bias to BEARISH. We have a lower percentage of stocks above their 20/50-day EMAs as compared to the Silver Cross Index and those percentages are shrinking. The intermediate-term bias has to be BEARISH as well given the SCI has topped and had a negative crossover in overbought territory. The long-term bias is BULLISH since we still have more stocks above their 50/200-day EMAs compared to the Golden Cross Index percentage. This implies we will see the Golden Cross Index rise.
CONCLUSION: The rally did not continue today as we had expected. CPI didn't cause any damage, nor did it ignite a rally. We have determined that the short-term indicators are negative enough to move us to a bearish bias in the short term. The IT bias was already bearish. Two bearish chart patterns dominate our SPY charts and participation is continuing to thin. There are pockets of strength available to us. Growth stocks performed well given Consumer Discretionary (XLY) and Technology (XLK) rallied strongest. Caution should still be exercised. Set stops to ensure a big market decline doesn't drag your portfolio down with it.
Erin is exposed 18%.
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BITCOIN
Bitcoin rallied off support. This was a surprise given the negative indicators. The RSI is already positive and Stochastics are rising again. The PMO would prevent us from being buyers here, but it does suggest caution on any contrarian positions you may hold on Bitcoin.
INTEREST RATES
We are seeing bullish double-bottoms on interest rates. A few of these patterns have been confirmed given breakouts at confirmation lines across the middle of the "W" in their patterns.
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
Yesterday's comments still apply:
"$TNX has broken its declining trend and is forming a bullish Adam & Eve double-bottom. The RSI is positive and the PMO has now reached positive territory. Stochastics are set strongly above 80. It appears rates will be making another run at new 52-week highs. PFIX is the interest rate ETF that follows yields."
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 "broke down" below its rising bottoms trendline. We put it in "quotes" because it wasn't a significant or decisive breakdown. Price basically drifted across the trendline. We aren't bearish on the Dollar. Indicators are still far too positive to expect a breakdown. The RSI is positive, the PMO is rising and Stochastics are firmly holding above 80.
GOLD
IT Trend Model: BUY as of 11/14/2022
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: GLD finished slightly higher and closed above the 50-day EMA. Still, support was not recaptured at the recent lows. Indicators remain very bearish. The RSI is negative and Stochastics are holding below 20. Worst would be the declining PMO.
GOLD Daily Chart: Today the reverse correlation with the Dollar held true as $GOLD was up about as much as the Dollar was down. Discounts remain high, but aren't trending one way or the other. We would expect Gold to test the 200-day EMA before it reverses back into a rising trend.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Gold Miners continue to decline. Participation fell off a cliff and is just getting worse. We now see that the Golden Cross Index has topped and is nearing a negative crossover its signal line. Support is arriving at the 200-day EMA, but given the lack of internal strength, we expect Miners to fall further."
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 dropped below the 20/50-day EMAs, but managed to right the ship to close down slightly. The indicators are still favorable enough to expect a test of $72, but this struggle at the 200-day EMA has us questioning the veracity of this rally.
BONDS (TLT)
IT Trend Model: BUYas of 12/2/2022
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The rising trend is barely holding on long Bonds. Stochastics give us some hope as they switch direction, but they are oscillators and when they hit the lows, they revert to the mean. The RSI and PMO tell us TLT will break down. We have two possible chart patterns and unfortunately each has a different outcome. On this short-term chart we see a bullish ascending triangle (flat top, rising bottoms), it tells us to expect an upside breakout, but the rising trendline is barely holding.
We can also see this as a possible symmetrical triangle (declining tops, rising bottoms). These are continuation patterns and suggest a downside break. We prefer this chart's symmetrical triangle, primarily because price is already attempting a breakdown. Indicators are bearish as well. And of course, we a bullish on yields which means we should be bearish on Bonds given their reverse correlation.
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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