The Energy sector (XLE) has been enjoying a rally throughout the summer. Today it logged a new all-time high on a small breakout. While the sector looks impervious, there are a few concerns that we should point out. First would be the overbought RSI. While a stock's price can remain overbought, typically when the RSI reaches this level you will see at least a pause. The other issue is the "Bearish Shift" of the Silver Cross Index (SCI) as it crossed below its signal line. The rest of the indicators, including our primary Price Momentum Oscillator (PMO) are bullish. You'll notice that participation (%Stocks > 20/50/200EMAs) remains well above our bullish 50% threshold and really isn't bleeding off much. Stochastics are comfortably above 80 suggesting internal strength.
Conclusion: The Energy sector looks very strong, but we are noticing a few problems under the surface. We should remember that overbought conditions can persist in a bull market which XLE clearly is in. If the Silver Cross Index continues to lose ground, we would tighten stops on your Energy positions.
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
For Today:
For the Week:
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.
For Today: 
For the Week:
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: Although price managed a slight rally off the 50-day EMA, the PMO is showing a Crossover SELL Signal coming in as it is equal to its signal line. The rally did move the RSI back above net neutral (50) which is somewhat positive.
The VIX did stay above its moving average on the inverted scale which is positive for the market. However, Stochastics are still declining. We don't see any real internal strength nor any true internal weakness yet based on those two indicators.
SPY Weekly Chart: The weekly PMO had surged (bottomed) above its signal line last week, but this week it topped again. The weekly RSI is positive, but the weekly PMO is definitely a big negative.
New 52-Week Highs/Lows: New Highs did expand and New Lows contracted as we would expect on a rally day. The 10-DMA of the High-Low Differential flattened out this week. Yesterday it declined, but today it did manage to rise slightly. Overall it was down on the week.
Climax Analysis: There were no climax readings today. We saw only one climax this week (although we nearly had a downside exhaustion climax yesterday) and that was a downside initiation climax on Tuesday which has fulfilled.
*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.
STOs began dropping on Tuesday. They are now in negative territory and aren't oversold yet. %Stocks >20EMA and %PMOs Rising are also in neutral territory. They did manage to stop the decline, but are reading well below are bullish 50% threshold.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
IT indicators continue to fall and have now confirmed the declining Swenlin Trading Oscillators above. %PMO Xover BUY Signals topped below 50% and are also declining. This is negative for both the short and intermediate terms given they confirm already ailing short-term indicators.
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PARTICIPATION: The following tables summarize participation for the major market indexes and sectors. The 1-Week Change columns inject a dynamic aspect to the presentation. There are three groups: Major Market Indexes, Miscellaneous Industry Groups, and the 11 S&P 500 Sectors.
Regional Banks (KRE) holds the highest IT Bias, but it doesn't mean it is healthy, it means that the SCI is much lower than the GCI. KRE is losing ground in both timeframes.
The lowest IT Bias goes to Semiconductors (SMH) primarily because the SCI is so much lower than the GCI. We aren't seeing any improvement on the SCI so we don't look at this sector as up and coming, but it isn't losing ground on the SCI or GCI either so it isn't particularly bearish as far as bias in the IT and LT.
This table is sorted by SCI values. This gives a clear picture of strongest to weakest index/sector in terms of intermediate-term participation.
Energy (XLE) not so surprisingly holds the highest SCI value, but we do note that today it dropped below its signal line moving it into the IT Bearish category.
Utilities (XLU) hold the lowest SCI value and didn't see any improvement this week. On the flip side, it didn't lose any ground in the IT or LT.
This table is sorted by GCI values. This gives a clear picture of strongest to weakest index/sector in terms of long-term participation.
Energy (XLE) and Semiconductors (SMH) hold the highest GCI values and both look solid as no ground was lost on their readings. They have the best foundation should we see a turnaround on the SCI and GCI values.
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've seen participation shrink below 50% levels. The Silver Cross Index (SCI) topped beneath its signal line this week which is very bearish in the intermediate term. With %Stocks > 20/50EMAs reading below the SCI, it will continue to move lower. The Golden Cross Index (GCI) has been losing ground. It is reading above %Stocks > 50/200EMAs so we expect it will continue lower. That gives us a bearish bias in the long term.
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.
Intermediate-term BIAS for the Nasdaq 100 (QQQ), Biotechnology (IBB), and Energy Sector (XLB) changed to bearish when their Silver Cross Index crossed down through their 10-day EMAs.
This table is incredibly bearish right now and suggests that participation almost across the board is failing. Even Energy has fallen prey to waning participation of stocks > 20/50/200-day EMAs.
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CONCLUSION: It wasn't a good week for the market and while it managed a positive close today, it didn't do much to improve the indicators; it mainly prevented more bleed from participation. Most notable today was the PMO logging a Crossover SELL Signal. Short-term and intermediate-term indicators are falling. The market bias is bearish in all three timeframes so we should expect any rally to be short-lived, if we actually see some upside follow-through. We would prepare for lower prices by reviewing your portfolio and tightening stops if necessary. As we have continued to write, this isn't the time to look for a losing position to turnaround. Bottom fishing is a very dangerous game right now.
Erin is 40% long, 0% short.
Calendar: Next week is quarterly options expiration. Expect low volatility toward the end of the week, and very high SPX Total Volume on Friday.
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BITCOIN
Bitcoin had a nice rally yesterday, but took most of it back with today's decline. It is in a tight trading range and given the lukewarm indicators, we don't see it breaking from it. We aren't looking for a breakdown given Stochastics are technically rising. We aren't looking for a breakout because the PMO is flat and negative. Expect more sideways trading.
This chart is to show where some of the support/resistance lines come from. This trading range sits on very strong support.
INTEREST RATES
Yields were mixed on the day with longer-term yields falling while most of the shorter-term yields expanded. We are still expecting yields to continue higher into next week.
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 are a bit concerned about the possible double top that is forming with the end of week decline. The PMO has topped below its signal line which is especially bearish and Stochastics have also topped. The rising trend should hold up based on the positive RSI. Given the current rising rate environment, we do look for that rising trend to hold up. It may just be time for a cooling off period as it moves back down to the rising bottoms trendline.
MORTGAGE INTEREST RATES (30-Yr)**
**We watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. As buying power has been shrinking, home prices have come under pressure.
--
This week the 30-Year Fixed Rate changed from 7.18 to 7.12.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT struggled to start the week, but finished with a slight rally. This is setting up a reverse head and shoulders pattern that would imply, based on its minimum upside target, that it will rally to the June high. We can't get that bullish based on the current interest rate environment. Additionally, the PMO isn't on board yet and the RSI remains negative. A rally to the August tops seems most likely given Stochastics have reversed.
TLT Weekly Chart: This is a somewhat odd place for TLT to advance from given we don't see any near-term support at this level. The weekly RSI is very negative and the weekly PMO is declining. We may see a short-term rally but the implications of the chart below suggest we will ultimately see Bonds move lower.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 7/13/2023
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar is holding a steady rising trend and based on the PMO should continue to see higher prices. Stochastics are also very positive so we know there is internal strength. The biggest problem is the overbought RSI. However, in a bull market like the Dollar is experiencing, that condition can easily persist.
Overhead resistance really doesn't come into play until UUP reaches above 30.50. That's a lot of upside potential.
UUP Weekly Chart: UUP is rallying out of a strong base. The weekly PMO is rising and is not yet overbought. The weekly RSI is nearing overbought territory, but still has room to accommodate more rally.
GOLD
IT Trend Model: NEUTRAL as of 8/2/2023
LT Trend Model: BUY as of 1/5/2023
GOLD Daily Chart: It's been a rough period for Gold, but it has held up better than we would expect given the very strong rally the Dollar is experiencing. This is a good place for Gold to reverse, on the 200-day EMA, but given declining Stochastics and declining PMO, we expect support will be tested soon at the August low.
GOLD Weekly Chart: The weekly chart isn't particularly encouraging right now except to say there is strong support nearby. The weekly RSI had managed to slip into positive territory, but it is fading after this week's decline. The weekly PMO doesn't inspire confidence either. We don't have exceedingly high discounts so we can't even look to sentiment to help Gold in the intermediate term.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are struggling and while they may've had a rally today, participation remains scant. The Silver Cross Index is getting very close to a Bearish Shift. Gold doesn't look very promising right now and that will continue to weigh heavy on GDX. A weak market isn't helping either. We would avoid this group for the time being.
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 was up on the week but did pause to finish it. This looks like a bullish flag that would imply another rally ahead. The PMO and Stochastics look very strong. The PMO is on the overbought side along with the overbought RSI, but as we continue to say, these conditions can persist. We expect an upside breakout when the pause is finished.
USO/$WTIC Weekly Chart: The weekly chart also implies more upside ahead. The weekly RSI is positive and the weekly PMO is rising and isn't overbought. $WTIC has not hit overhead resistance yet. $OVX is holding above its moving average on the inverted scale and that implies internal strength. We expect USO to challenge the 2022 high.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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