(Editor's Note: This section is from the article Carl published today.)
When we talk about "participation," we are referring to the number of stocks actually taking part in a given market move. Presently, we are looking at the rally from the October lows and the indicators we use to assess it. First, we have our Silver Cross Index (SCI), which shows the percentage of stocks in the S&P 500 that have their 20-day EMA above their 50-day EMA. This configuration is an intermediate-term BUY Signal, and we can see that the SCI currently reads 47 percent. Note that the SCI reading at the February price top was about 80 percent, so we have a double price top with a severe SCI negative divergence.
We have a similar situation with the Golden Cross Index (GCI), which shows the percent of stocks with the 50-day EMA above the 200-day EMA, a long-term BUY Signal. At 52 percent, it reads a bit higher than the SCI, but it is a slower moving indicator. Nevertheless, it too has negative divergence against the two price tops.
The remaining three panels show the percent of stocks in the index with price above their 20-, 50-, and 200-day EMAs. They are all reading in the 40 percent range, and are all displaying negative divergences. All this evidence tells us that participation is narrowing with fewer stocks supporting the price advance.
Conclusion: Last Friday's rally fueled hopes that the rally from the October lows would be continuing, but fading participation shows severe erosion of the technical foundation, and a rally continuation seems highly unlikely.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
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 Market Index, Sector, and Industry Group charts.
THE MARKET (S&P 500)
IT Trend Model: BUY as of 3/30/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: The very short-term declining tops trendline was broken today. Unfortunately, a bearish filled black candlestick resulted. These one-day candlestick patterns suggest a decline to follow the next day.
It's hard to tell, but the PMO did continue lower today in spite of the rally. The RSI is still positive above net neutral (50). Stochastics are technically rising, but they are looking a bit toppy. The VIX straddled its moving average today, not revealing much. We would say that internal strength is neutral, basically not bearish, but not bullish either.
Here is the latest recording:
S&P 500 New 52-Week Highs/Lows: Both New Highs expanded but there still were a substantial number of New Lows. Ultimately we find this chart negative based on the declining 10-DMA of the High-Low Differential.
Climax* Analysis: There were no climax readings today.
*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 FLAT and the condition is NEUTRAL.
The STOs continued moving higher but both remain in negative territory. As Carl wrote earlier, participation can be read as weak at best. Currently both %Stocks > 20-day EMA and %PMOs Rising are below the bullish 50% threshold.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
IT indicators are not confirming rising STOs so we aren't making too much of their rise, particularly given participation is shrinking overall. Both the ITBM/ITVM continue lower. We have about the same number of PMO BUY signals as rising PMOs. Basically this indicator cannot move higher than rising PMOs as you can't have a PMO Crossover BUY Signal if the PMO isn't actually rising.
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 market bias in the short term is BEARISH.
The market bias in the intermediate term is BEARISH.
The market bias in the long term is BEARISH.
Negative divergences are stark on this chart, particularly the SCI and GCI. Shrinking participation is also a problem. %Stocks above the 20/50-day EMAs has now dropped below our 50% bullish threshold. The Silver Cross Index is falling and we have %Stocks above their 50/500-day EMAs below the 50% bullish threshold leaving us bearish in the IT and LT. The GCI saw a Bear Shift as it dropped beneath its signal line.
CONCLUSION: Participation continues to trend lower and with no bullish reading (greater than 50%), it isn't likely that this trading range will resolve to the upside. Especially bearish today was the Golden Cross Index seeing a "Bear Shift" or a drop beneath the signal line. Negative divergences are particularly unsettling given how steep they are. The PMO continues to decline even on a rally. The signposts all point to a decline ahead. There are still pockets of strength within various industry groups, Erin presented two for "ETF Day" in DP Diamonds, but stay vigilant and stay defensive.
Erin is 18% long, 7% short.
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BITCOIN
Bitcoin is now testing strong support at 27,000. Indicators are negative enough to expect this level not to hold. The RSI is negative and the PMO continues to decline. Stochastics are now in particularly weak territory below 20.
INTEREST RATES
Yields continue to hold support. Bearish underpinnings are at work though as the move to Bonds begins.
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 in a trading range between 3.4 and 3.7. Indicators are beginning to show deterioration as the RSI travels below net neutral (50) and the PMO moves slightly lower. Stochastics are slowing as well. We would look for a test of 3.3 as support.
BONDS (TLT)
IT Trend Model: BUY as of 3/17/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT reversed just in time to save the short- and long-term rising trends. It also rebounded just before dropping below strong support at 103. The indicators are still wishy washy. The RSI is negative, but rising. The PMO is flattening, but still on a Crossover SELL Signal. Stochastics just dropped into very weak territory below 20. If the market declines in earnest as we expect, this level of support should hold.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 3/28/2023
LT Trend Model: SELL as of 4/12/2023
UUP Daily Chart: The Dollar's PMO is back to rising as are Stochastics. This gives the chart a bullish bias. However, with the RSI in negative territory, we don't expect much out of the Dollar. We believe the current trading range between 27.60 and 28 will remain in force.
Yesterday's comments still apply:
"There is a large symmetrical triangle on the 1-year daily chart. The prior trend was up so ultimately in the intermediate term, we should expect a breakout. However, we do note that this triangle is beginning to disintegrate. Price is so close to the apex, a break in either direction will have to happen. We see a high likelihood that price will simply drift sideways out of the pattern as it holds within the current trading range."
GOLD
IT Trend Model: BUY as of 3/7/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: The inverse correlation has deteriorated between the Dollar and Gold. Instead of the theoretical perfect inverse correlation of -1.00, it has moved to -0.43. This means they are "decoupling" and can travel more independently. That occurred today as the Dollar was down along with Gold. This implies weakness as a decline in the Dollar should lead to higher prices on Gold.
GOLD Daily Chart: We do see that Gold is holding a rising trend in all three timeframes. Indicators are also encouraging as the RSI is positive, Stochastics turned up and the PMO is nearing a Crossover BUY Signal. We also see that discounts on PHYS are on the low side, meaning traders are less bearish on Gold. Look for the rising trend to continue. A test of all-time highs isn't too far away.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are cooling, particularly today. Notice the severe damage to %Stocks above their 20/50-day EMAs. The Silver Cross Index had a Bear Shift, moving beneath its signal line. Readings are still high enough that a reversal isn't out of the question. We would pay close attention to any Gold Mining positions you might hold. If the decline continues, we will be looking at an ominous double-top formation.
CRUDE OIL (USO)
IT Trend Model: SELL as of 5/3/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil is acting fishy. After forming a bullish engulfing candlestick yesterday, price didn't comply with the pattern and declined today. Indicators were firming, but now we have the RSI topping in negative territory and the PMO topping well beneath its signal line. USO is highly vulnerable to more downside. Stochastics are offering some hope as they rise, we would just be prepared for lower prices.
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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