In Monday's trading room we discussed that Technology (XLK) was the last one standing on our Bias Scoreboard with a Bullish Bias in both the intermediate term and long term. Today that bullish bias was lost in both timeframes. When the Silver Cross Index drops below its signal line, it is a "Bearish Shift" that moves the IT Bias to "Bearish". When the Golden Cross Index drops below its signal line, it moves the LT Bias to "Bearish" on a Bearish Shift.
The Price Momentum Oscillator (PMO) is in decline again and is headed for a Crossover SELL Signal. Most concerning is the complete loss of participation. %Stocks > 20/50/200EMAs have seen declines since the sector topped at the beginning of September. We would easily read the ST Bias as "Bearish" given %Stocks > 20/50EMAs are below our bullish 50% threshold.
Adding insult to injury are the RSI dipping below net neutral (50) and Stochastics which are falling fast.
Conclusion: Technology tends to lead the market and in this case it should lead the market lower. Relative strength has been failing and the loss of the Bullish Bias in both the IT and LT suggest this is not a sector to rely on in your portfolio. Stay defensive.
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MARKET/INDUSTRY GROUPS/SECTOR INDEXES
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 decline caused the PMO to cross beneath its signal line for a Crossover SELL Signal. Support may be holding, but it doesn't look good.
The VIX may be above its moving average on the inverted scale, but Stochastics have topped. What little internal strength the market had is beginning to fade.
Here is the latest recording from 9/11:
S&P 500 New 52-Week Highs/Lows: The 10-DMA of the High-Low Differential topped today just above the zero line. This is a bearish development.
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 UP and the condition is NEUTRAL.
In an interesting turn of events, the Swenlin Trading Oscillators both turned up on today's decline. Participation of stocks above their 20-day EMA is holding steady. The decline didn't really affect %PMOs Rising.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
IT indicators continued to rise. We even saw a percentage point gain on %PMO Crossover BUY Signals.
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 bias is BEARISH in all three timeframes.
While the Bias is bearish in all three timeframes, we do note that %Stocks > 20/50/200EMAs haven't been depleted as we would expect right now.
Short term, we have %Stocks > 20/50EMAs below our bullish 50% threshold. Intermediate term, the Silver Cross Index is declining after topping beneath the signal line. The Silver Cross Index percentage is above %Stocks > 20/50EMAs so it will continue to decline. Long term, the Golden Cross Index is falling and we have %Stocks > 50/200EMAs reading lower. This means the Golden Cross Index will continue to fall.
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.
The Technology Sector (XLK) Silver Cross Index crossed down through its 10-day EMA shifting the intermediate-term BIAS to bearish. Also for the Technology Sector and Semiconductor Industry Group (SMH), the Golden Cross Indexes crossed down through the 20-day EMA shifting the long-term BIAS to bearish.
One look at this table should tell you there are internal problems within the market and price shouldn't be as healthy as it currently is.
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CONCLUSION: We are bearish right now, but bulls do have a few things to be thankful for. The Swenlin Trading Oscillators turned up and participation isn't as weak as we would expect given the Bearish Bias in all three timeframes. However, we believe the Bearish Bias will override rising ST/IT indicators. The PMO SELL Signal on the SPY is especially concerning. At this point we should err on the side of caution by reevaluating stop levels and letting struggling portfolio positions go. Positions in Technology should be managed very carefully given the weak participation and Bearish Bias.
Erin is 40% long, 0% short.
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BITCOIN
Bitcoin isn't giving up as it rallied strongly after a terrible day of trading yesterday. This wasn't a breakout move, but it does solidify the current trading range. While the indicators have turned back up, we still see the trading range winning the day.
INTEREST RATES
Yields were little changed on the day. Rising trends 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
We see a possible reverse island formation building on the gap up after the big rally of support. Indicators are mostly neutral, but given Stochastics are rising so we aren't expecting a gap down just yet.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT wants to form a reverse head and shoulders but right shoulder looks suspicious as price meanders sideways. Stochastics are topping beneath net neutral (50) and the RSI is negative. There is a PMO Crossover BUY Signal, but the PMO is moving sideways. It will be tough going for TLT to rally here, but it needs to if the bullish chart pattern is going to properly develop.
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 formed a bearish filled black candlestick. The PMO is definitely overbought right now, but indicators aren't breaking down. If the candlestick fulfills with a decline, we don't expect a big one.
GOLD
IT Trend Model: NEUTRAL as of 8/2/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: Gold formed a bullish hollow red candlestick, but we don't see anything bullish about the Gold chart right now with the exception of a PMO Crossover BUY Signal that Gold is clinging to. Price did manage to close above the 200-day EMA, but we would look for a test of the August low.
GOLD Daily Chart: $GOLD lost its PMO Crossover BUY Signal today so the same will likely happen for GLD above. We would prepare for a drop to 1900.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"This reversal on GDX looks very interesting. The PMO is surging above the signal line (bottomed above signal line) and participation of stocks above their 20/50/200-day EMAs is inching higher. The Silver Cross Index did have a Bearish Shift moving the IT Bias to Bearish so don't bet the house on this reversal. If the Silver Cross Index shifts above the signal line, then we might look for a longer lasting rally. This looks like a reverse head and shoulders."
CRUDE OIL (USO)
IT Trend Model: BUY as of 7/12/2023
LT Trend Model: BUY as of 8/3/2023
USO Daily Chart: Crude Oil is continuing to rally out of a bull flag. Given news of production and drilling cuts, we expect USO will continue to enjoy higher prices. The RSI is very overbought, but given the bull market that Crude is in, that will likely persist.
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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