Sentiment is a contrarian indicator, if we want a lasting rally, we want to see very bearish sentiment charts. If we want to know when the market is ready to top, we want to see very bullish sentiment charts.
Currently our sentiment charts aren't reflecting the kind of bearish activity that we want to see. Certainly investors and money managers are bearish, but not excessively.
The first chart is the American Association of Individual Investors (AAII). We want to pay particular attention to the bull/bear ratio. It is below the bearish 1.0 threshold, but isn't as oversold as we've seen. Notice also that the number of bears are nowhere near the same as at previous market bottoms. Less than half of investors are bearish right now.
Below is the National Association of Active Investment Managers (NAAIM) exposure levels. Those surveyed are less exposed than we normally see, but not at lows associated with market bottoms.
Conclusion: While we are seeing bearish sentiment, it isn't at extreme bearish levels. We haven't seen much in the way of capitulation. We need more downside before we will see bearish extremes.
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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MARKET/INDUSTRY GROUP/SECTOR INDEXES
CLICK HERE for Carl's annotated Market Index, Sector, and Industry Group charts.
THE MARKET (S&P 500)
IT Trend Model: NEUTRAL as of 9/25/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: Today the SPY formed a bullish engulfing candlestick which tells us to look for higher prices tomorrow. The RSI is still very weak and the PMO has not yet turned up, but it's early in the rally.
The VIX is now on the rise on our inverted scale, but remains below its moving average, indicating internal weakness. Stochastics are rising suggesting we could see some follow-through on today's rally.
Here is the latest recording 9/25:
S&P 500 New 52-Week Highs/Lows: New Lows pared back as we would expect, but are still at near-term oversold levels. We would take our cue from the 10-DMA of the High-Low Differential which is still falling. It is near-term oversold, but we could see lower prices given it is dropping below prior levels.
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 DOWN and the condition is OVERSOLD.
Today both STOs rose. We now have 1/3rd of the index with rising momentum so we could see more follow-through to the last two days of rally.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
Our IT indicators are not confirming rising STOs so any rally isn't likely to be meaningful over the intermediate term. The ITBM/ITVM could see lower readings, but they are extremely oversold already. If %PMO Xover BUY Signals turns up right now it would set up a positive divergence with price. So far it hasn't turned up; today it stayed the same.
PARTICIPATION: 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 is BEARISH in all three timeframes.
We did see a small expansion in %Stocks > 20/50EMAs but not enough to warrant changing our short-term bias to bullish. The Silver Cross Index continues lower alongside the falling Golden Cross Index. The bias is firmly bearish in the intermediate to long terms.
BIAS Assessment: The following table expresses the current BIAS of various price indexes based upon the relationship of the Silver Cross Index to its 10-day EMA (intermediate-term), and of the Golden Cross Index to its 20-day EMA (long-term). When the Index is above the EMA it is bullish, and it is bearish when the Index is below the EMA. The BIAS does not imply that any particular action should be taken. It is information to be used in the decision process.
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CONCLUSION: One look at the bias table above and we know there is serious weakness across the market. On the bright side, indicators are getting very oversold and STOs turned back up today. We will likely see some more follow-through, but given the IT indicators are still declining, we wouldn't count on it to stick around for very long. It is risky business jumping in early. If anything it does offer an excellent opportunity to let go of weak positions. Tighten stops to protect against a probable market failure right after this relief rally.
Erin is 10% long, 2% short.
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BITCOIN
Bitcoin often ignores the indicators and that's what it just did. They weren't looking good yesterday but today's strong rally switched them to bullish. The RSI is positive and not overbought and the PMO has surged above the signal line. Stochastics ticked upward. While this bodes well for Bitcoin, it has been rangebound and it is nearing the top of the near-term range. We'd like to see Stochastics rising higher as they're still in negative territory.
INTEREST RATES
Yields paused the rally today, but rising trend remain intact.
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 pulled back somewhat today, but it didn't make the chart any less bullish. In fact, it helped the RSI drop from extremely overbought territory. It's still overbought so we could use more downside. The PMO and Stochastics look far to bullish to expect a collapse in the yield.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The 20-year yield like most others paused and pulled back slightly giving TLT an opportunity to rally. We don't see it turning into anything grand because indicators are still very bearish. Stochastics in particular tell us internal weakness abounds.
TLT has lost very important longer-term support. We'll have to take a look at the monthly chart to find where the next level of support lies.
It appears 80.00 is the next likely stopping point. However, given the very ugly monthly PMO and breakdown this month, we shouldn't expect that level to hold.
DOLLAR (UUP)
IT Trend Model: BUY as of 8/3/2023
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar finally let up and declined today. This was good for the RSI which was able to move out of overbought territory. Stochastics are very strong as they oscillate above 80. The PMO is positive but it is very overbought. We expect the rising bottoms trendline will be tested on a small decline, but indicators are too positive to expect a breakdown there.
We don't see any real overhead resistance yet on the 1-year daily chart.
GOLD
IT Trend Model: NEUTRAL as of 8/2/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Gold is internally weak. Despite the Dollar losing ground today it was down further than the Dollar. Support has been lost. The RSI is entering oversold territory, but the PMO is increasing the margin between it and its signal line. Stochastics have dropped below 20.
GOLD Daily Chart: $GOLD was down even further than GLD. Support is arriving, but it is weak at best given its one "touch" is the early March top. 1800 seems a more likely area to expect price to fall. Today's incredible weakness against the Dollar is a harbinger of lower prices.
GOLD MINERS Golden and Silver Cross Indexes: GDX, unlike Gold, did take its cue from a falling Dollar. Additionally the market rallied to help it out. However, the chart remains incredibly bearish. There is very little participation and the Golden Cross Index is now accelerating lower. This is a strong area of support, but indicators do not suggest it will hold.
CRUDE OIL (USO)
IT Trend Model: BUY as of 7/12/2023
LT Trend Model: BUY as of 8/3/2023
USO Daily Chart: USO pulled back after yesterday's gap up rally. This afforded an opportunity for the RSI to leave overbought territory. The PMO is clinging to a Crossover BUY Signal and is overbought, but given the bull flag that was confirmed yesterday, we don't expect the decline to last very long.
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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