Today the Materials Sector (XLB) was hit hard with a big gap down move of over 2.5%. We noticed this during this morning's free DecisionPoint Trading Room and wondered what was the problem. We decided to do a little snooping to see if we could figure out what happened.
The Aluminum industry group was down more than any other group. Some of the groups were down over 3%, but none came close to Aluminum's decline.
We decided to dig in a little more into the group and found that all of the stocks within did decline by quite a bit, but Alcoa (AA) beat them all and is likely the reason the group failed. We couldn't find any news related to Alcoa and it already reported earnings on 1/17.
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: BUY as of 11/14/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: The market digested Friday's rally today, helped along by rising interest rates. We had to check the numbers, but the PMO did manage to rise one-hundredth of a point today. We thought it would top. Probably will see that tomorrow barring a healthy rally.
The VIX remains beneath its moving average which implies some internal weakness, but Stochastics are very healthy above 80 and are still flashing strength.
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S&P 500 New 52-Week Highs/Lows: We are finally starting to see New Lows logged. Big news is the 10-DMA of the High-Low Differential topped today. It is very overbought and typically these declines come at market tops.
Climax* Analysis: There were unanimous climax readings on the four relevant indicators, giving us a downside initiation climax. This is certainly a cautionary sign, but we think that today's market action resembles the churn expected after Friday's strong advance.
*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.
Swenlin Trading Oscillators (STOs) continue to decline and have now reached negative territory. Negative divergences are stark on the short-term indicator chart. We have less than half of the index holding rising momentum, we need more to keep the rally fires burning bright.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
Both the ITBM and ITVM moved lower, confirming the decline on short-term indicators. %PMO Xover BUY Signals is still holding steady at 38%. Considering the rally out of the October low, you would think that we'd have far more PMO BUY Signals. That is a negative divergence on its own.
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 short-term market bias is BULLISH, but deteriorating.
The intermediate-term market bias is BEARISH.
The long-term market bias is BULLISH.
We have more than 50% of stocks holding above their 20/50-day EMAs so we are still listing the short-term bias as bullish. However, they are in decline and hold negative divergences with price. The Silver Cross Index has accelerated its decline and is below its signal line so the IT Bias is Bearish. The Golden Cross Index has stalled out, but is above its signal line so the LT Bias is Bullish.
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: All but Semiconductors (SMH) hold Bearish IT Biases as seen on the table above. STOs have hit negative territory and both the ITBM and ITVM are confirming their declines. The 10-DMA of the High-Low Differential also topped in overbought territory. We believe the numerous negative divergences are giving us ample warning of a likely decline. Earnings season is about halfway over and of the half that have reported, 80% beat expectations. In spite of today's downside initiation climax, earnings could prevent a heavy decline. It sounds like a recipe for churn. Caution is warranted as the market is vulnerable based on our indicators.
Erin is 20% long, 0% short.
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BITCOIN
After the euphoria wore off on the new Bitcoin ETFs release, price is back to its prior price range. The indicators are mostly flat with Stochastics pointing lower below 80 so we are expecting the trading range to continue which would likely mean a drop toward support.
BITCOIN ETFs
INTEREST RATES
Yields are bouncing off support and are likely to continue their rise back toward January highs.
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 has recaptured its prior rising trend and popped above the 50-day EMA. The RSI is positive and the PMO has surged above the signal line. Stochastics look very favorable. We expect overhead resistance at 4.2% to be overcome.
BONDS (TLT)
IT Trend Model: BUY as of 11/28/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With rates back to rising, Bond funds are struggling and TLT is no exception. The RSI has moved into negative territory and the PMO topped beneath the signal line which is very bearish. Stochastics are falling. We do not believe support will hold.
DOLLAR (UUP)
IT Trend Model: BUY as of 1/23/2024
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar is rallying strongly after breaking out last Friday. The PMO is now accelerating higher suggesting more upside will follow.
Overhead resistance will arrive at the 2023 high around 28.40.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: As we would expect on a strong rally from the Dollar, Gold declined. It was a nearly perfect inverse today with the Dollar up +0.56% and Gold down -0.55%. Gold was looking like it might make a run for all-time highs, but price action Friday and today suggest otherwise. Support is still holding and there is another level of support at the December low. We aren't expecting the bottom to drop out, but we could see a slow melt down to 183.00.
Discounts are elevated, suggesting investors are already bearish on Gold. They aren't as bearish as they could be so we aren't looking for a price reversal based on sentiment yet.
GOLD MINERS Golden and Silver Cross Indexes: A rising Dollar and falling Gold caused a deep decline for Gold Miners. Support has now been reached at the January low. Participation is weak, but not non-existent so a reversal at this level is possible. However, given the very ugly Silver Cross Index and Golden Cross Index, which both topped, we would prepare for more downside.
CRUDE OIL (USO)
IT Trend Model: SELL as of 2/1/2024
LT Trend Model: SELL as of 12/18/2023
USO Daily Chart: Crude Oil rallied after a deep decline to end last week. The rally hasn't improved the indicators. The RSI is negative, the PMO declining toward a Crossover SELL Signal and Stochastics falling in negative territory. We see a possibility for a snapback toward the breakdown point, but with the PMO pointed lower, we don't want to get too bullish.
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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