Periodically we like to review sentiment charts. Today we have two for you. One is the poll results from the American Association of Individual Investors (AAII) and the other is the National Association of Active Investment Managers (NAAIM) Exposure level.
In both cases we are starting to see sentiment lopsided to the bullish side. Not a surprise given the rally out of the October lows, investors should be bullish. However, bullish sentiment becomes a problem if it hits extremes. Sentiment is contrarian. When investors get overly bullish and hop on the wagon, the wheels will eventually fall off from the weight. The reverse is also true with extreme bearish sentiment typically leading to higher prices. This is apparent when you look at key tops and bottoms in the market.
The Bull/Bear Ratio is where to focus on the AAII chart. The ratio is definitely showing strain to the upside, but it could get more overbought.
The NAAIM Exposure Index shows high readings of exposure. We would point out that during a strong bull market move as we saw in 2020-2021 those readings can get very overbought and not lead to downside. We just note that last time readings got to this level, it was a problem.
Conclusion: Readings on sentiment indicators are lopsided to the bullish side. However, we do note that these readings can persist in a strong bull market move. That is likely the case right now, but we should be aware that current conditions are reading overbought for sentiment indicators. It will be worth watching further.
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: BUY as of 11/14/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: The SPY marched ever higher setting another all-time high as investors digested the report on inflation that suggested it is easing. The RSI remains overbought telling us price is overbought. The PMO is rising and has put some margin between it and its signal line.
Mega-caps are in control based on the rising relative strength line of the SPY v. equal-weight RSP. As long as they hold up so will the market. The VIX is above its moving average on the inverted scale and Stochastics are strong above 80 suggesting internal price strength.
SPY Weekly Chart: As noted above, we saw fresh all-time highs this week. The weekly RSI is very overbought, but in a strong bull market move, this can persist as we saw back in 2021. The weekly PMO has risen past its previous top, negating any negative divergences.
New 52-Week Highs/Lows: New Highs pared back on today's rally, but we saw fewer New Lows. The 10-DMA of the High-Low Differential is technically rising but it looks more tentative. It is overbought.
Climax Analysis: There were no climax readings today. We saw one climax this week on Monday, a downside initiation climax that did not come to fruition which is a bullish sign.
*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) are bouncing around. The latest move is upward which is positive for the short term. We did not see an expansion in rising PMOs and participation of stocks above their 20-day EMA also was flat.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM and ITVM are confirming the rising STOs as they rise as well. The major problem on the chart are the negative divergences and the lack of PMO BUY Signals. We do note, however, that %PMO Xover BUY Signals did expand today. With only 48% showing rising PMOs this indicator will likely stagnate.
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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.
This week the strongest IT Bias goes to Biotechnology (IBB). Results under the surface were mixed with a gain on the Golden Cross Index and a decline on the Silver Cross Index. The SCI will need to see some improvement moving into next week before we get too excited about its IT Bias.
Utilities (XLU) hold the most negative IT Bias and given the huge loss to the SCI and the loss on the GCI, it is likely to get worse before it gets better.
This table is sorted by SCI values. This gives a clear picture of strongest to weakest index/sector in terms of intermediate-term participation.
Real Estate (XLRE) lost the most SCI percentage points this week and is being hit hard on its decline. Internals are failing and given the SCI is at 65, it has much further to go.
This table is sorted by GCI values. This gives a clear picture of strongest to weakest index/sector in terms of long-term participation.
Financials (XLF) and Semiconductors (SMH) hold the highest GCI readings and they didn't lose any ground. Both remain robust as far as the SCI as well.
XLU not so surprisingly holds the lowest GCI reading and things are getting worse for both the SCI and GCI. This is a sector to be avoided.
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 BULLISH in the short term.
The market bias is BEARISH in the intermediate term.
The market bias is BULLISH in the long term.
While there are negative divergences on %Stocks readings, they are reading above 50% so we are listing the short-term bias as BULLISH. The Silver Cross Index is below its moving average and declining to we list the intermediate-term bias as BEARISH. It holds a negative divergence with price as well. The Golden Cross Index avoided a negative crossover and is headed higher above its signal line giving us a BULLISH long-term bias.
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: There is no denying the bullish indicators and so we won't. The rally is continuing ever higher and while price is overbought, it appears it can accommodate more upside. Primary indicators (STOs, ITBM/ITVM) are rising again and the PMO is looking even more bullish. We are still concerned about the negative divergences which suggest participation is not as strong as it should be at this juncture of the rally. This tells us that when the market does fail, it is likely to be deeper than expected by most. We need to be nimble right now and consider our investment horizon as very short term. Stops should be applied and can be moved up as needed as the rally continues to climb the wall of worry.
Erin is 70% long, 0% short. Erin expanded her portfolio now that earnings are complete on her positions.
Calendar: Next week is options expiration, so we should expect low volatility on Thursday and Friday.
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BITCOIN
Bitcoin is off to the races again and Bitcoin ETF holders are quite happy as they are beginning to make up for the losses on the front end. Volume is rising with price and the indicators are lined up to see a rally continuation. The PMO looks particularly bullish as it accelerates above the zero line.
This chart is to show where some of the support/resistance lines come from. 50,000 is the next likely stop. It is more of a psychological level of resistance. Current resistance is already being met at 48,000.
BITCOIN ETFs
Today:
This Week:
INTEREST RATES
Yields are back on the rise as the Fed pushed rate cuts further out. We annotated a new support level that we believe will continue to hold for some time. Bond funds will continue to feel downward pressure.
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 now up against overhead resistance, but we note that the PMO has reached the zero line on its rise. The RSI is also positive so we are expecting a breakout here next week. Stochastics are certainly confirming that line of thinking.
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 6.63 to 6.64. They seem to be finding equilibrium in this range.
BONDS (TLT)
IT Trend Model: BUY as of 11/28/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: Yields are on the rise and this will continue to move TLT lower. Support is arriving, but yields look too bullish to expect that level to hold. We could see some sideways consolidation before then. Indicators also suggest TLT will not hold this support level. The RSI is negative and the PMO is in decline. Stochastics are particularly weak.
TLT Weekly Chart: The weekly PMO did manage to move upward by a few hundredths of a point, but it looks ready to top. The weekly RSI is headed lower. The short term is already weak and the intermediate term is weakening.
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 rallied to start the week but didn't do much past that. The rising trend is still clearly intact. While the RSI is positive and the PMO is rising, Stochastics look suspect. Price did not test the top of the channel before drifting lower and that is not good. With the PMO flattening, we would expect to see more sideways movement. Should the rising trend be lost, then we would look for steady decline.
UUP Weekly Chart: The weekly chart suggests that the current rising trend should hold up. The weekly RSI is positive and the weekly PMO is about to trigger a Crossover BUY Signal. Overhead resistance is strongest at 28.50.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold is in a holding pattern, moving sideways without much volatility. The RSI has moved into negative territory. The PMO is very flat but still in decline. Stochastics don't look healthy. We expect more sideways movement above current support.
This week the correlation between Gold and the Dollar basically disappeared. They are now decoupled, meaning Gold isn't as tied to the Dollar as it normally is. However, in both the case of the Dollar and of Gold, charts are suggesting sideways movement. Gold is more vulnerable to decline though given relative strength is fading against the UUP.
GLD Weekly Chart: It has now been four times that Gold has challenged all-time highs and all four times it failed to overcome. The weekly PMO has turned down and it does suggest we will eventually see Gold decline below the support levels annotated on the daily charts above.
GOLD MINERS Golden and Silver Cross Indexes: So much for a possible bullish double bottom. We didn't expect a rally here based on weak participation numbers. Those numbers are getting more negative. The PMO is in decline and the RSI is negative. The Silver Cross Index is accelerating lower. We would look for a drop toward the October low.
CRUDE OIL (USO)
IT Trend Model: SELL as of 2/1/2024
LT Trend Model: SELL as of 12/18/2023
USO Daily Chart: This week Crude Oil got back on track rallying all five days. Today however formed a bearish filled black candlestick that suggests lower prices on Monday. Ultimately we do expect a breakout as the PMO is rising again above the zero line and Stochastics are headed higher. Energy should benefit.
The next level of overhead resistance to be challenged is just below 75.00.
USO/$WTIC Weekly Chart: The weekly chart is not revealing anything. The RSI is neutral and the weekly PMO is flat. There is a symmetrical triangle dominating the chart. These are continuation patterns, but they can easily break either way which is another neutral sign. For now price is staying in a rising trend so we will vote for an upside breakout as the triangle suggests.
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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