It occurred to us, after we discussed the "Death Crosses" (50-day EMA dropping below the 200-day EMA) on the NDX and Nasdaq 100 in yesterday's subscriber-only DecisionPoint Alert, that we should investigate the actual damage done. The tech-heavy NDX and Nasdaq 100 are in bear markets, along with Technology (XLK).
We've been questioned about our discussion of the SPY being in a bear market because we don't have a 20+% decline yet. Well, if you go by that "official" 20% number, XLK, NDX and Nasdaq are all in "official" bear markets. Let's look at all three.
XLK looks particularly bearish right now. Price has failed at the 200-day EMA and the PMO has topped beneath its signal line. It just had a short bear market rally, but it is back to declining. From its high to its recent low, it is a slightly-more-than-20% decline. Participation is lacking, with only 17% of stocks having a 20-day EMA > 50-day EMA (a "Silver Cross") and less than a quarter with price > 20-EMA. Only about half of the sector have "golden crosses" (50-EMA > 200-EMA), meaning they are in a bull market. The rest, we assume, are in bear markets.
PARTICIPATION and BIAS Assessment: 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 Nasdaq ($COMPQ) had its "Death Cross" a few weeks ago. It is down over 22% from top to bottom.
Below is the Participation chart for the Nasdaq. Both the SCI and GCI are at very bearish levels, below 30%.
The NDX had a Death Cross yesterday. It was down a little over 22% from all-time high to the last low.
Below is the participation chart for the NDX. The SCI is at a paltry 23% and the 46% reading on the GCI tells us that more than half of the index are in bear markets themselves.
Conclusion: Aggressive sectors like Technology continue to be very weak. There are wartime beneficiaries out there like Crude Oil, Gold, Specialty Chemicals, Metals and Mining, to name a few. Erin has been following these closely in the subscriber-only DecisionPoint Diamonds reports. She had some very successful stock picks from these areas that had "Diamonds in the Rough" finishing this week in the green.
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Good Luck & Good Trading!
Carl & Erin Swenlin
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Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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