In this morning's DecisionPoint Trading Room, we were asked about the health of the S&P600 small-cap index (IJR). The daily chart below is not encouraging. We can't even see a support level available. It was up the least amount among the major indexes. Participation did not see much expansion on the rally and the Silver Cross Index is heading lower. We wouldn't look at this chart and think "reversal".
However, the weekly chart is more encouraging as far as support. We did lose support at the 2023 lows, but we now have support available at the 2022 low and the Feb 2020 high. This does appear sturdy. We should point out that the weekly RSI is negative and the weekly PMO is declining bearishly. The StockCharts Technical Rank (SCTR) is a paltry 19.1%. While this is an interesting area for a reversal, we do note that it could fall another 8% before reaching the bottom level. If it cannot hold this level and we see a breakdown, we don't see support available until we reach 74 with a possible drop further to 67. Overall the outlook is bearish, but there is a ray of hope as support nears.
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
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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: The saw a strong rally that formed a long tail on today's candle that resembles a bullish hammer candlestick. These are the types of candlesticks we want to see at a reversal point. They generally see followthrough.
One day of rally did manage to turn Stochastics back up but they remain extremely negative sitting below 20. The VIX is below its moving average on the inverted scale and that implies internal weakness. The PMO did decelerate somewhat on the rally.
Here is the latest recording from 10/30:
S&P 500 New 52-Week Highs/Lows: New Lows pared back as we would expect on a rally day, but they were still logging fairly high. We saw no New Highs, but given the deep decline of the past two weeks, it isn't particularly surprising.
Climax* Analysis: There were climax readings on two of the four relevant indicators today, and SPX Total Volume was solid, so we think that we can safely declare an upside initiation climax. Expectations should be for more upside. It is, however, a marginal call.
*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.
We are listing the Swenlin Trading Oscillators (STOs) as 'oversold', but given today's acceleration higher, we don't think they will be oversold for long. We've annotated positive divergences between STOs and price. We did see a modest expansion in stocks above their 20-day EMAs and we have a respectable 37% of stocks with rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
Both the ITBM and ITVM decelerated their decline. They appear ready to turn back up. We have positive divergences on all three of these indicators.
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 don't have enough expansion in %Stocks > 20/50EMAs to consider the short term as bullish or even neutral. The Silver Cross Index is below its signal line and declining and the Golden Cross Index is below its signal line and declining. This gives us a bearish bias in the intermediate and long terms.
Take a close look at our Bias table below the chart. The market is internally weak.
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 items with highlighted borders indicate that the BIAS changed today.
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CONCLUSION: Take a close look at the Bias table above. Conditions are about as bearish as they can get. This could certainly fuel more downside, but it appears the market is ready for a little relief with today's rally sparking an upside initiation climax. STOs continue to rise and while IT indicators are declining, they did decelerate. Both ST and IT indicator charts have positive divergences. We have positive divergences on our bias chart. We should look for some followthrough on this rally, but until IT indicators reverse, we should assume it will be very short-term. We would still apply caution.
Erin is 20% long, 15% short.
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BITCOIN
Bitcoin continues to digest its strong rally. It is forming a pennant on a large flagpole which is bullish. The expectation of the pattern is a breakout and a rally the length of the flagpole. That seems overly bullish, but with Bitcoin it isn't out of the realm of possibility. The PMO is still rising and Stochastics are rising again above 80. While we aren't certain about the length of a breakout rally, we do see one on the horizon after this period of digestion is finished.
INTEREST RATES
Yields were on the move higher. Rising trends remain intact. We expect them to continue to rise. Our expectation is that longer-term yields will rise back above shorter-term rates. We don't see a yield curve flattening due to lowering short-term yields.
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 did break the second parabolic pattern, but it didn't crash lower as we would usually see out of a parabolic breakdown. Given Stochastics topped on a day when the yield was higher, we suspect that the falling PMO will confirm a short-term decline ahead. This will likely be temporary if it happens 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 is holding short-term support but we see it ultimately failing. The PMO may be on a Crossover BUY Signal, but it is already flattening and will likely see a SELL Signal this week. Yields are due for a cooling off period, so support could hold a bit longer.
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 continues to consolidate sideways after its rally run through august and September. It appears very "flag-like" and that does imply an upside breakout. Given the PMO has been declining all month and we've seen little price deterioration, we expect this to resolve upward.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold paused today but held above prior resistance. The RSI left overbought territory and the PMO is rising with Stochastics holding firmly above 80. We see the rally continuing.
GOLD Daily Chart: We are seeing some difficulty for Gold to overcome 2000, but today it did close above it. Discounts on PHYS are still quite elevated suggesting investors haven't warmed to the metal yet. Bearish sentiment is good to keep the rally pushing higher. Gold is performing very well against the Dollar. The correlation between the two is nonexistent so they can travel independently of one another in the short term.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners stalled today. The PMO is still rising. Participation did lessen, but the Silver Cross Index is still rising strongly and is above our 50% bullish threshold. We see the price pattern as a bull flag. Stochastics are falling so the flag could develop further.
CRUDE OIL (USO)
IT Trend Model: BUY as of 7/12/2023
LT Trend Model: BUY as of 8/3/2023
USO Daily Chart: Consider most are bullish on Crude Oil, we are surprised that we haven't seen a sticky rally yet. The indicators are configured negatively with the RSI in negative territory and Stochastics in decline. The PMO looks particularly bearish as it accelerates lower. We would look for support to be tested at least one more time before we see the breakout that we are all expecting.
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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