This week Technology (XLK) and Semiconductors (SMH) led, finishing higher than all of our "under the hood" indexes, sectors and industry groups. We thought we should look under the hood and see if we might get followthrough.
XLK rallied above its 50-day EMA today, but was already seeing a rising PMO. The RSI is now back in positive territory and Stochastics are rising vertically. Participation of stocks above their 20/50-day EMAs is breaking out. One problem we see is a bearish reverse divergence on the OBV. The OBV is making new highs, but price is not. Price should follow volume. The Silver Cross Index is rising again which is good news, but the Golden Cross Index is picking up speed to the downside so we believe this rally will be short-lived.
Semiconductors (SMH) were a big reason XLK fared so well this week. We now see a new PMO Crossover BUY Signal and a positive RSI. Stochastics are rising strongly. Participation of stocks above their 20/50EMAs has expanded in a big way. We do still have the reverse divergence problem with the OBV like XLK, but the Silver Cross Index is about to have a "Bullish Shift" on a positive cross above its 10-day EMA. We expect any rally into next week to be led by XLK and SMH.
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/SPX SECTOR/INDUSTRY GROUP INDEXES
Change Today:
Change for the Week:
CLICK HERE for Carl's annotated Market Index, Sector, and Industry Group charts.
THE MARKET (S&P 500)
IT Trend Model: NEUTRAL as of 9/22/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: Today's strong rally broke through the short-term declining tops trendline. Ultimately we are seeing churn above 420 and this could just be a part of that, but this does look pretty good for the short term. The PMO turned up today.
Stochastics are now above 20, but seem a bit too tentative given today's strong rally. The VIX is below its moving average on the inverted scale which suggests internal weakness.
SPY Weekly Chart: The weekly chart does have a bullish cup with handle formation, but the weekly PMO tells us not to get our hopes up as far as a longer-term rally.
New 52-Week Highs/Lows: New Lows expanded on today's big rally and that is a negative divergence in our minds. We are still waiting for the 10-DMA of the High-Low Differential to turn up. That would be a good sign for the intermediate-term viability of this rally.
Climax Analysis: Today only two of the four relevant indicators had climax readings. SPX Total Volume was strong, so we will consider that we got an upside initiation climax, but it was a weak one.
*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 NEUTRAL.
Swenlin Trading Oscillators (STOs) continue to show a positive divergence with price and suggests this rally isn't fly by night. We now have more than half of the index showing rising momentum. That could keep this rally afloat.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
The ITBM and ITVM both turned up, giving us some confirmation on rising short-term indicators. Readings are extremely oversold but we saw back in 2022 they can reverse on you quickly. We will keeping an eye out for a positive divergence like we saw at the 2022 low, for now only %PMO Crossover BUY Signals show a positive divergence.
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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.
All hold negative IT Biases. The best belongs to Biotechnology, but it lost ground on both the SCI and GCI. The worse interestingly is Semiconductors (SMH), but we are seeing improvements being made on the SCI.
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) holds the highest ranking on the Silver Cross Index table, but notice that this week's decline finally exacted some damage on participation. The SCI lost 17 percentage points this week.
Regional Banks (KRE) are still pulling up the rear with the lowest SCI percentage. It lost even more ground this week. This is not an industry group to hold positions in right now.
This table is sorted by GCI values. This gives a clear picture of strongest to weakest index/sector in terms of long-term participation.
XLE also holds the highest GCI ranking, but it is already seeing damage in the long term based on the loss of 5 percentage points this week. This sector got very overbought and it is now feeling the sting. We would look for continued weakness from this area of the market.
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.
We are seeing some improvement in %Stocks > 20/50EMAs, but readings are still far below our bullish 50% threshold. There is still a distinct declining trend in both the SCI and GCI. The SCI continues lower and given its percentage is higher than %Stocks > 50EMA, it could continue lower. The GCI is moving lower and is now below our bullish 50% threshold.
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 Bias is bearish across the board with the exception of Materials (XLB) which is holding onto its long-term bullish bias. Based on our GCI table and a look at its chart and we see the GCI still rising so that bias should hold up going into next week.
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CONCLUSION: The market rallied on what was considered a positive spin on this week's jobs report. The market is showing some increased strength and now rising momentum, but it isn't that broad given we have so few stocks above their 20/50-day EMAs. We see positive divergences in the short term, a newly rising PMO and IT indicators that have turned up. Today's mild upside initiation climax also suggests we'll see some follow-through next week. We wouldn't get too extravagant on adding to your portfolio. Any added positions should be considered very short-term as we think the bearish biases will win out and the rally will stall. Hedges won't likely produce, but they will protect you should the decline resume more quickly than anticipated.
Erin is 10% long, 6% short.
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BITCOIN
Stochastics turned up this week on Bitcoin. They were the hold out as the PMO and RSI were already positively configured. We would look for overhead resistance to be tested at 29,000. We could see a breakout there, but in usual Bitcoin fashion, we expect to see some churn before that happens.
This chart is to show where some of the support/resistance lines come from.
INTEREST RATES
We noted this week that the yield curve is beginning to flatten. This is due primarily because longer-term rates are catching up to shorter-term rates. We don't see the inversion itself going away for some time.
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 is in a parabolic rally. We thought it might break down this week when yields pared back, but it is back to rising vertically. The PMO has now surged above the signal line. The RSI is overbought so we do need to see $TNX pull back, the PMO just suggests it isn't quite time to expect it.
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, which shuts many buyers out of the market, and potential sellers will experience pressure to lower prices (to no effect so far).
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This week the 30-Year Fixed Rate changed from 7.31 to 7.49.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT couldn't look much more bearish. It did see a small rally this week, but it only was a pause in the decline. Rates are overbought by a mile, but nothing on TLT suggests relief is in sight. With Stochastics below 20 we know that TLT is internally weak on its own and the tumbling PMO suggests more downside. TLT is very oversold based on the RSI so a pause in the decline could materialize, but it would likely only be a pause.
TLT Weekly Chart: We can't even see support on the weekly chart. What we do see is a weekly PMO that is not oversold and accelerating lower. The weekly RSI tells us what we already know, TLT is oversold. However, with such strong downside momentum, we should not expect a reversal yet.
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 formed a bearish engulfing candlestick today suggesting the Dollar may break its rising trend. The PMO is holding above its signal line, but is nearing a Crossover SELL Signal. The Dollar looks the most vulnerable it has for months. Stochastics have dropped below 80. There's a good chance that Gold bugs will get their wish of a falling Dollar over the next month or two. We won't get too bearish until that rising trend is broken. The Dollar has managed to escape a deeper decline throughout this rising trend.
UUP Weekly Chart: The Dollar is overbought on the weekly chart based on the weekly RSI and is definitely due for a pullback or correction. We've expected that to happen at overhead resistance, but as noted above the Dollar is very vulnerable to a correction in spite of the rising weekly PMO. Ultimately we should expect overhead resistance to be met, we just might see a pullback before then.
GOLD
IT Trend Model: NEUTRAL as of 8/2/2023
LT Trend Model: SELL as of 10/5/2023
GOLD Daily Chart: Gold enjoyed a rally on the Dollar's decline. That hasn't held true for most of the week while the Dollar has been declining. Indicators are still very negative, although both the RSI and Stochastics are rising again. Discounts have been elevated and do suggest this could be an opportunity for Gold to finally rally.
This looks like a good place for the rally to begin off the 1800 level. Notice that relative strength against the Dollar is finally seeing a small rise. We like this area for a rally.
GOLD Weekly Chart: The weekly chart is far from positive based the indicators, but you can see how 1800 could be a good reversal point for Gold. There is still lots of negative momentum to deal with, but a reversal has to start somewhere and this looks like a good possibility.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners hit rock bottom on participation and are now starting to show a tiny heartbeat as far as stocks above their 20-day EMA...very faint heartbeat. We like Gold's chances to rally and that will offer GDX an opportunity to continue to rally. The PMO is already turning up. We would still be very careful with this group. Overhead resistance at the August low is arriving and could pose a problem.
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 rallied, but formed a bearish filled black candlestick. On the bright side, it could also be considered a bullish hammer. We expect USO won't turn this around until it tests the 200-day EMA, but this is a nice area to see a reversal given it lines up with the April top. Stochastics are falling so we expect price to continue lower. The RSI isn't oversold yet and the PMO is configured negatively.
The strongest area of support lies at that 200-day EMA and 70.00. Given it dropped below the August top, we do see price going down to test that level of support at the August low.
USO/$WTIC Weekly Chart: This week's decline did some damage on the weekly chart. Price is below the 17-week EMA and the weekly PMO has topped. This decline was needed as the weekly RSI was getting overbought. $OVX is hovering just above the lower Bollinger Band on the inverted scale. A puncture would signal a likely end to the decline.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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