We had three changes to our Bias Table today. First, Energy (XLE) and Healthcare (XLV) saw Bullish Shifts on the Silver Cross Index as the SCI crossed above its 10-day EMA for both. Finally, Materials (XLB) saw a Bearish Shift on the Golden Cross Index as the GCI crossed below its 20-day EMA.
XLE has surged mainly due to uncertainty that the war between Israel and Hamas would affect oil supply. This condition will likely persist in the short term. We can see that participation has expanded greatly and the PMO is about to turn back up. A move to test prior highs seems imminent.
XLV has been enjoying a rally for longer than XLE. Notice that participation has improved greatly for stocks moving above their 20/50-day EMAs. Stochastics are rising strongly and the PMO triggered a Crossover BUY Signal today. This looks like a constructive price bottom that should lead prices back to the top of the trading range.
Materials (XLB) is looking up with a breakout rally today, but internals are still a problem. The GCI's abrupt drop beneath its signal line gives us pause. While we are seeing more stocks above their 20-day EMA, we aren't getting a similar reaction on stocks above their 50/200-day EMAs. The rally could continue, but there are better sectors to be involved in (like the two above).
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MARKET/INDUSTRY GROUP/SECTOR INDEXES
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THE MARKET (S&P 500)
IT Trend Model: NEUTRAL as of 9/22/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: Today's candlestick is a shooting star, which is short-term bearish. It implies the following day will be a decline. We have a good start to an extended rally, but it might be time for some churn.
The PMO has nearly triggered a Crossover BUY Signal. The VIX remains below its moving average but its rise on our inverted scale implies traders are getting more comfortable. Stochastics are rising and moved above net neutral (50) which touts internal strength.
Here is the latest recording from 10/9:
S&P 500 New 52-Week Highs/Lows: New Lows were almost non-existent today as losers begin finding their feet again. The 10-DMA of the High-Low Differential looks very bullish as it rises out of oversold territory.
Climax* Analysis: There were three climax readings on the four relevant indicators today, so that gives us an upside exhaustion climax. SPX Total Volume expanded, but was not at blowoff levels.
*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.
Sadly Swenlin Trading Oscillators (STOs) are getting overbought already. They still have room to accommodate more rally, but we don't want them to run out of real estate to the upside. %PMOs Rising has hit overbought territory, but like STOs there is still room for them to run higher.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The ITBM/ITVM continue to confirm rising short-term indicators. %PMO Crossover BUY Signals is rising strongly and should continue to rise strongly given 80% of stocks have rising PMOs.
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 NEUTRAL to BULLISH in the short term.
The market bias is BEARISH in the intermediate- and long-terms.
We are moving our short-term bias to "Neutral to Bullish" given the strong expansion of readings for %Stocks > 20/50EMAs. They are still below our bullish 50% threshold so we aren't ready to move the short-term bias to bullish just yet. The SCI has turned up which is bullish. We are waiting for it to shift above its signal line before calling the IT Bias as bullish. The GCI is below our bullish 50% threshold and is in decline leaving the long-term bias bearish.
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.
As noted in the opening, XLE and XLV saw their Silver Cross Indexes move above their 10-day EMAs. XLB saw its Golden Cross Index move below its 20-day EMA giving it a bearish bias in the long term.
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CONCLUSION: Today saw more followthrough to the prior two rallies, but we suspect the market has run too hot too quickly. The upside exhaustion climax and shooting star candlestick suggest we will see a pause or churn before the rally reengages. ST indicators are already looking overbought so a pause makes sense to keep them out of overbought extremes. IT indicators look very bullish which tells us this is likely a significant market bottom. We now have an opportunity to consider expanding our portfolios. We would still apply stops to your positions at this time. Hedges could be released.
Erin is 45% long, 2% short.
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BITCOIN
The PMO topped on Bitcoin making us less optimistic about overhead resistance being tested this time around at 29,000. Stochastics have also topped for a second time below 80. We would look for more sideways movement along support at 26,500.
INTEREST RATES
Rates pulled back today, but none of the rising trends on long-term yields have been compromised. We do note the yield curve flattening, but this isn't due to falling rates, it is due to longer-term rates rising to meet already high shorter-term rates.
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 identified the parabolic pattern on Friday, and today we saw the breakdown. We just love the reliability of parabolics -- they beg for correction, and they usually deliver. We do not think that the top for yields has been reached, but a short correction is in order. The rising trend doesn't look vulnerable at all.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT didn't take advantage of falling rates today likely because it had already rallied yesterday while the bond market was dormant for the holiday. This does look like a constructive bottom, particularly given rates appear ready to pullback. The PMO is rising again and Stochastics actually made it above 20.
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 has pulled back to the rising bottoms trendline and based on the PMO and Stochastics, we have to believe the decline will continue. We do recognize this would be the perfect place for the Dollar to resume the rally given price is on the rising bottoms trendline and the 20-day EMA. We vote for a breakdown at this point based on deteriorating indicators.
GOLD
IT Trend Model: NEUTRAL as of 8/2/2023
LT Trend Model: SELL as of 10/5/2023
GLD Daily Chart: Gold paused the rally today which was a bit surprising given the Dollar's decline. It alerts us that internal strength may not be as strong as we thought. The PMO is rising again, as are Stochastics, so we do believe this rally will continue.
GOLD Daily Chart: Discounts on PHYS remain elevated suggesting many investors aren't on board with Gold yet. This condition generally leads to an upside reversal like we are seeing right now. One problem for Gold is that it is about to see a Death Cross of the 50/200-day EMAs. We don't want to get overly bullish.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Gold Miners look excellent right now. Gold's rally has certainly helped and we believe with the market in for a rally, this could be a lucrative area of the market to dabble in. Notice that participation of stocks above their 20-day EMA popped higher with the rally. Stochastics are moving up again. It would be safer to wait for more stocks to get above their 50-day EMA, but much the move will likely have happened by that time. Tread carefully."
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 eased off its war rally from yesterday. We don't have a positive PMO or RSI yet and the 20-day EMA could be considered overhead resistance. However, Stochastics are rising and we do see the war as a catalyst to even higher 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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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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