NEARLY AT 5%... Previous messages have mentioned 5% as the next major upside target for the 10-Year Treasury yield. The TNX hit 4.99% today. Chart 1 shows the next potential target at 5.25% which was the closing high formed sixteen years ago. That previous peak may provide some overhead resistance which could slow or stall the rise in bond yields. In the meantime, rising yields still present a headwind for stocks. No major trend changes, however, have taken place.

Chart 1

S&P 500 REMAINS ABOVE 200-DAY AVERAGE...The last message on October 6 pointed out that both versions of the S&P 500 needed to remain above major support lines. So far, they've been able to do that. The daily bars in Chart 2 show the SPX having bounced off its 200-day moving average (red arrow) and a rising trendline drawn under its October/March lows. Chart 3 gives a closer view of that test and shows the SPX meeting resistance at its 50-day average (blue arrow). The index also remains below a falling trendline drawn over its July/September highs. Until those resistance lines are overcome, the strength of the recent rebound will remain in doubt.

Chart 2

Chart 3

EQUAL WEIGHTED VERSION ALSO TESTS IMPORTANT SUPPORT... Chart 4, which was included in the previous message, shows the S&P 500 Equal Weighted Index testing major support along its spring low. As explained on October 6, the inability of the SPXEW to exceed its February high in late July (red arrow) marked a top in both versions of the S&P 500 and pushed both into important tests of support. That makes the test of the lower (green) trendline by the Equal Weighted index important both for itself and the S&P 500 Cap Weighted Index. Both are likely to succeed or fail together.

Chart 4

 

 

The Home Construction ETF (ITB) led the market the first seven months of the year, but fell on hard times the last two months and reversed its long-term uptrend. Today's report/video will look at the trend reversal in ITB using the RSI Trend Range indicator. We will then highlight a homebuilder with a confirmed Double Top and put forth a downside target. This bearish outlook jibes with our broad market analysis at Chart Trader.

 

The first chart shows ITB with a head-and-shoulder top forming from late June to September. ITB broke support with a gap down on September 21st to confirm this pattern. The ETF continued lower into October and the big trend is down. Note that SPY is up around 2% in October, but ITB is down 2.79% and showing relative weakness.

RSI(65,5) confirms the trend change with a move below 49 on September 27th. This indicator is the 5-day SMA of 65-day RSI. Long-term momentum turns bullish (uptrend) with a move above 51 and stays bullish until a move below 49. The recent move below 49 confirms the trend reversal on the chart and I am bearish on ITB. This indicator is part of the TIP Indictor Edge Plugin for StockCharts ACP.

The next chart shows Toll Brothers (TOL) with a confirmed Double Top. The stock formed two highs in the 84 area (red arcs) and broke support at 75 on September 21st. TOL bounced in early October, but notice how broken support turned into first resistance (red line). The support break is holding and I view this as bearish. The blue shading marks the downside target in the 60 area. A close above 75 would warrant a re-evaluation.

This week at Chart Trader we focused on SPY and QQQ as they bounce within bigger downtrends. Both are near resistance/reversal zones and we marked the key levels to watch going forward. Chart Trader also features several trading ideas for ETFs and stocks. Each report includes a video. Click here to take a trial.

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In this edition of StockCharts TV's The Final Bar, Dave shares how growth over value is less about the types of companies and more about the market cap represented in the largest benchmark names. He breaks down today's pop-and-drop for Bitcoin and answers questions from the newly-added live Q&A!

This video originally premiered on October 16, 2023. Watch on our dedicated Final Bar page on StockCharts TV, or click this link to watch on YouTube.

New episodes of The Final Bar premiere every weekday afternoon LIVE at 4pm ET. You can view all previously recorded episodes at this link.

The Relative Rotation Graph above could not be more clear. Large Caps are leading the dance at the moment.

The rotations of the tails for Mid- and Small-cap stocks are rolling over and entering the lagging quadrant again. This means that they are embarking on a new leg lower in an already existing relative downtrend.

The opposite goes for the Large Cap tail, which has just curled back up inside the weakening quadrant and is now heading back into the leading quadrant.

Stacking the Three Size Indices

This can also be seen very well by just eye-balling the charts when we plot all three indices under each other.

From the lowest point in the large-cap chart, Large caps are still almost 8% higher than where they started at the end of April. Mid-caps and Small-Caps are pretty much unchanged at +0.2% and 0.1%.

Measuring the decline from the highest point in the last week of July, Large caps are down 6.4%, while Mid-caps are down almost 10% and Small-caps almost 12%.

So, despite the current weakness in all market segments, Large-caps are still preferred over the mid-and small-cap segments. Btw this does not imply that prices are, or will be, going up!! It only signals that large caps are the better place to hide at the moment.

Growth vs Value Broken Down into Size Segments

When we break down the Size segments into Growth and Value, things get more interesting.

In the RRG above, you see the rotations for Growth and Value segments, broken down into the three size segments. And the resulting image is sending a very clear message. Large-cap growth stocks are leading the market. Again, be careful. This does not mean their prices are, or will be, going up. It only signals that this is currently the strongest segment in the market from a relative perspective.

The Rotational Picture In Price Terms

Plotting this universe of indices against $ONE gives an entirely different picture.

All these tails are at a negative heading and inside or moving toward the lagging quadrant. This indicates that all segments in the market are going down in price. The only slight positive on this RRG is the $DJUSGL tail, which has started to curl up a little before closing in on the lagging quadrant.

Finding Tradeable Opportunities

Now, to find tradeable opportunities, I looked up all the members of the IVW ETF, iShares S&P 500 Growth.

You can find this information here. Then, save all the symbols in a ChartList for further processing. This list holds all the stocks that, according to S&P Global, are considered "Growth" stocks. It is interesting to see plenty of stocks on the list from sectors not necessarily seen as "Growth."

As the list holds> 200 symbols, we need to do some cleaning to narrow it down to a more manageable number.

Trimming the list

Assuming we are looking for stocks going up in price, to begin with, so not necessarily ONLY looking for relative strength, I put the list in the scan engine. I added the requirements for stocks to be above their 5-day AND 20-day moving averages.

This brings the list down to 23 stocks (around 11 am on Friday, 10/20). Adding the requirement that the 5-day MA be above the 20-day MA trims the list to 18 stocks.

Here is the RRG for that group.

Given my requirements for the scan, it is no surprise that all those tails are pointing northeast on the daily RRG.

Another interesting observation is that there are no Technology or Communication Services stocks on this list. At the same time, these sectors show the strongest positive rotation on a sector level. Most names are in the so-called defensive sectors (Utilities, Health Care, Staples)...

So while Large Cap Growth Stocks are leading the dance, it's primarily the "growth" stocks that are inside the "defensive" sectors...

Get the weekly perspective.

To get the longer-term perspective, I changed the RRG to weekly, which gives this image.

A few symbols are getting less interesting as they are on a negative RRG-Heading.

In the next pass, I disabled the tails that are not on a positive RRG-Heading (0-90 degrees)

All of these stocks are worth a bit more research.

Two Interesting Stocks

Combining the weekly RRG with the daily version at the top of the article puts NOC and LMT at the forefront. However, looking at their charts, we can see that both have already made a big jump, making them a bit riskier to chase as they already have had a big move up, not a good risk/reward profile.

After going over the chart, I came up with two stocks that look interesting to me.

McKesson - MCK

The first one is MCK. This stock is in a strong uptrend on the weekly chart, pushing to new all-time highs, while relative strength is also pushing to new highs, pushing both RRG-Lines above 100 and the RRG-tail deeper into the leading quadrant.

This strong rotation is confirmed by the daily RRG-tail, positioned inside the weakening quadrant but heading back toward the leading quadrant.

Corteva - CTVA

CTVA has been in a strong downtrend since the end of 2022, both on the relative and the price charts. However, these downtrends seem to be coming to an end now.

On the price chart, CTVA has hit support around 48.50, potentially forming a double bottom. This formation will execute when resistance near 53.50 will be taken out. The next target will be the falling resistance line that marks the upper boundary of the falling channel in which CTVA still sits. Currently, that level lies near 55.

From a relative perspective, CTVA is in a similar situation, although it looks as if the falling resistance has already been cleared. And the small double bottom is about to execute as well.

Therefore, picking this up around current levels will likely put you in good shape from a relative perspective. The price chart is a bit more challenging, and depending on your level of aggressiveness or risk appetite, the execution of the double bottom, taking out the falling resistance, can be used as a trigger to enter.

#StayAlert and have a great weekend, --Julius

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Stock market action in the last few months reflects how quickly investor sentiment can change. Federal Reserve Chairman Powell's comments on Thursday implied that inflation is still high and the US economy continues to be strong. Although there's a high probability that interest rates will remain unchanged in the November meeting, it's unclear what the agenda will be for the December meeting. Powell's remarks didn't help the broader equity markets, which closed lower for the week on Friday.

The daily chart of the S&P 500 below shows that market breadth is also weakening in addition to the index battling with its 200-day simple moving average support.

CHART 1: S&P 500 TRENDING LOWER. The index closed below its 200-day moving average, and the percentage of stocks trading below their 50-, 100-, and 200-day moving averages are also trending lower. Chart source: StockCharts.com. For educational purposes.

The percentage of S&P 500 stocks trading above their 50-, 100-, and 200-day moving averages are declining.

Bond Yields Rise

The higher-for-longer interest rate narrative helped long-dated bond yields. The 30-year US Treasury yield is around 5.1%, and the 10-year US Treasury is close to 5%. The higher yields are having an impact on the banking sector. The daily chart of the SPDR S&P Regional Banking ETF (KRE) shows the ETF is getting close to its May levels, when the US regional banking crisis occurred. Big banks are feeling the pain as well. The SPDR S&P Bank ETF (KBE) also displays a similar price action as KRE.

CHART 2: REGIONAL BANKS FALL AS YIELDS RISE. Regional banks, as well as the big banks, have been feeling the pain of higher interest rates. Price levels are close to where they were in May when the regional bank fiasco occurred. Chart source: StockCharts.com. For educational purposes.

Bond spreads are showing some significant action. The 10-year/2-year bond spread (see chart below) is rising steeply and is at -0.16. The same can be said about the 10-year-3-month spread. The 30-year/3-year and 30-year/5-year spreads are also trending higher. The steepening yield curves support Chairman Powell's statements about the strong economy and high inflation. And this increases investor uncertainty.

CHART 2: 10-YEAR/2-YEAR US TREASURY SPREAD. Long-dated bonds are up, which steepens the spread between the 10- and 2-year Treasury yields. Chart source: StockCharts.com. For educational purposes.

Interestingly, while interest rates are rising, gold prices have been rising, which is unusual. This indicates that investors are jittery about global events and are leaning toward risk-off sentiment.

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Check out the Dynamic Yield Curve on the StockCharts charting platform.

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Turning to Volatility

You'd think the present uncertainties would send volatility through the roof. Yet, the Cboe Volatility Index ($VIX), considered to be a fear gauge, hasn't shown signs of outlandish panic. The VIX tends to move inversely to the S&P 500. When the S&P 500 falls, VIX rises, and when fear is extreme, the VIX spikes. Although the VIX hasn't been showing outlandish levels of fear, it has been trending higher since mid-September, which needs to be watched closely.

CHART 3: CBOE VOLATILITY INDEX (VIX) WITH 30-DAY MOVING AVERAGE OVERLAY. Although the VIX isn't at "panic levels" it's rising and has moved above the complacent 20 level. Keep an eye on this. Chart source: StockCharts.com. For educational purposes.

We are in the midst of escalated geopolitical tensions, interest rates are rising, a speakerless House of Representative, and so on. And while uncertainty rises, we have a big earnings week coming up with some of the big tech stocks reporting.

There's a lot to look forward to next week. Fasten your seatbelts. It could be a turbulent ride.

End-of-Week Wrap-Up

US equity indexes down; volatility up

• $SPX down 1.26% at 4224.16, $INDU down 0.86% at 33,127.28; $COMPQ down 1.53% at 12983.81
• $VIX up 1.45% at 21.71
• Best performing sector for the week: Energy
• Worst performing sector for the week: Real Estate
• Top 5 Large Cap SCTR stocks: Veritiv Holdings, LLC (VRT); Super Micro Computer (SMCI); Applovin Corp. (APP); Palantir Technologies, Inc. (PLTR); Nu Holdings, Ltd. (NU)

On the Radar Next Week

• Earnings from Alphabet, Inc. (GOOGL), Microsoft Corp. (MSFT), Snap, Inc. (SNAP), Boeing Co. (BA), Meta Platforms (META), Chevron Corp. (CVX) and many more.
• September New Home Sales
• Q3 GDP
• September PCE

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Gold (GLD) has been strong this month and today its 50-day EMA crossed up through its 200-day EMA (Golden Cross), generating an LT Trend Model BUY Signal. You will note that a Silver Cross BUY is not far behind. We'll discuss Gold in its section.

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Also today, the NYSE Composite ($NYA) and Materials Sector (XLB) 50-day EMAs crossed down through their 200-day EMAs (Death Cross), generating LT Trend Model SELL Signals.

Near-term support is arriving at the October low, but given the poor participation numbers and this new Death Cross, we would look for that level to be broken.

XLB has lost near-term support but is arriving near very strong support at 74. Be leery of participation numbers. Miners are doing extremely well and that is likely where all of the positive participation lies. Support should be tested and likely not successfully.

 

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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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Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!

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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.

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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: Near-term support has been reached but the depth and voracity of this decline certainly suggests it will not hold. We have a new PMO Crossover SELL Signal. It topped well below the zero line which is very bearish. Volume has been strong during this decline.

The VIX closed once again beneath its lower Bollinger Band on the inverted scale. It hasn't resulted in higher prices so we won't look for them right now. Stochastics are very negative suggesting internal weakness.

 

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DON'T DELAY! IT'S FREE!

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SPY Weekly Chart: We have a bullish cup with handle pattern on the weekly chart, but the handle is forming a bearish descending triangle (flat bottoms, declining tops). It suggests a breakdown and the likelihood that this handle will continue forming.

 

New 52-Week Highs/Lows: New Lows didn't expand as we would expect and we still see a rising trend on New Lows. If this trend continues and we set a new low, that would set up a positive divergence. Since we don't have a price low established we will not read too much into this possible bullish setup.

 

Climax Analysis: There were strong, unanimous climax readings on the four relevant indicators today, giving us another downside exhaustion climax. This was confirmed by heavy SPX Total Volume, which was heavy, but we still don't think it qualifies as blowout volume. This means that we can probably expect more downside next week.

*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) gave us a good read on this last price top. We did expect a reversal because IT indicators were still rising. They no longer are. Participation continues to shrink and based on %Stocks > 20EMA and %PMOs Rising not sitting on oversold readings, we have to assume we have more downside to absorb.

 

Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is NEUTRAL.

IT indicators began to descend yesterday. The last time we saw these indicators turn down in negative territory, it preceded the last leg down. %PMO Crossover BUY Signals has topped and based on only 35% of stocks showing rising PMOs, that indicator will continue lower.

 

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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.

Gold Miners (GDX) holds the highest IT Bias which makes sense as it is one of the few areas of the market enjoying a solid rally. You'll note that both the Silver Cross Index and Golden Cross Index gained significant percentage points this week.

The lowest IT Bias is -36 and it is owned by Semiconductors (SMH). This group led the charge out of the October low and they are now seeing significant internal weakness. It didn't lose any SCI points, but it did lose 4 percentage points on the GCI which is part of why it holds the lowest IT Bias.

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 SCI value and it is holding onto it as it didn't see any losses. The group is benefiting from higher Crude Oil prices, but it is now seeing weakness as Crude pauses. We believe Crude will continue to rise and that should ease the weakness that is trying to seep in on the sector in general.

Real Estate (XLRE) moved Regional Banks (KRE) out of last place. What little participation it was seeing is disappearing quickly as it has lost 3 more percentage points on its SCI.

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 holds the highest GCI reading and it improved by five percentage points this week. Long-term strength is visible and building.

Regional Banks (KRE) are in last place. This is group that continues to look weak. It didn't lose any percentage points on the SCI or GCI, but readings are very low and suggest we stay away from this group.

 

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.

 

%Stocks > 20/50EMAs shrank this week on the decline, pushing readings below our 50% bullish threshold. We had seen readings over 50% on stocks above their 20-day EMA this week, but that condition disappeared as soon as it was visible. The SCI ventured above its signal line this week, but couldn't hold above it, moving the IT Bias back to BEARISH in the intermediate term. The GCI continues to decline below its signal line.

 

 

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: Volatility for options expiration did not meet the expectation of low volatility on Thursday and Friday, which were two solid down days. Internal weakness is a problem with participation numbers shrinking and Stochastics falling vertically. Our original supposition was that this decline would be brief and we would return to rally. Unfortunately, this week our IT indicators turned down, confirming already declining short-term indicators. This condition and the Bias have us bearish moving forward. It is time to reengage shorts and hedges. Stops should be applied and tightened on longs.

Erin is 20% long, 6% short.

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Use coupon code: DPTRIAL2 at checkout!

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BITCOIN

Bitcoin broke out as indicators suggested it would. The RSI is now overbought so a digestion phase could follow this weekend. Given the strongly rising PMO and Stochastics, we believe that overhead resistance at 31500 could be tested soon.

This chart is to show where some of the support/resistance lines come from.

 

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INTEREST RATES

Yields pulled back today but it did nothing to help the market. Rising trends are steep and in some cases parabolic so an easing on rates may materialize. Ultimately, we do expect them to hold rising trends and move higher after a brief pause.

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

We have a second parabolic formation on $TNX. Today's decline didn't do much damage if any on the short-term rising trend. It brought the RSI out of overbought territory setting it up to accommodate more upside. The PMO is rising and Stochastics are oscillating above 80. We could see a small digestion phase, but ultimately indicators are positive enough to look for the yield to rise higher.

 

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 7.57 to 7.63.

 

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BONDS (TLT)

IT Trend Model: SELL as of 5/16/2023

LT Trend Model: SELL as of 1/19/2022

TLT Daily Chart: TLT managed a rally today as the 20-year yield declined. The PMO is declining after topping well below the zero line. It is incredibly weak right now. We can't even see support on the daily or weekly charts. Given indicators are in decline and weak, we should expect TLT to move even lower.

 

TLT Weekly Chart: The weekly PMO topped beneath the zero line setting up this extended decline. It is diving lower and is not oversold yet giving us a bearish outlook in the intermediate term. The monthly chart is not included today, but we will tell you that the next line of support is at 80 followed by 60. 60 is not out of the question.

 

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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 has spent most of October churning and digesting the extended rally out of the July low. The PMO has been declining most of the month but price hasn't been damaged overall. We expect the Dollar to resume its rally. The RSI is positive and has been so price is not overbought. Stochastics are rising slightly in positive territory. Look for more churn with a rally to follow.

This looks very flag-like. Bull flags suggest that a breakout from the flag will result in a rally the height of the flagpole. We're not so sure about the length of the rally, but this flag does suggest higher prices to follow this consolidation phase.

 

UUP Weekly Chart: UUP is about to challenge resistance at 30.50. We see it having no problem reaching that level based on the bullish weekly PMO. This digestion phase is beginning to take the weekly RSI out of overbought territory which would prepare it for the rally to 30.50. We are the currency of choice and with wars disrupting the globe, the Dollar is staying strong and likely will continue to.

 

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GOLD

IT Trend Model: NEUTRAL as of 8/2/2023

LT Trend Model: BUY as of 10/20/2023

GOLD Daily Chart: As noted in the opening, Gold has had an excellent month. We believe the next month will be good for Gold as well. The Golden Cross should be soon followed by a Silver Cross (20-day EMA > 50-day EMA). The PMO is back in positive territory. One issue is the overbought RSI, but we do expect that it will move even higher. Stochastics are oscillating above 80 suggesting internal strength. Gold doesn't look ready to cool yet.

We rallied above the September high today and it spent time above 2000. We expect the May top to be challenged. Discounts on PHYS remain very high suggesting investors are bearish on Gold still. Sentiment is contrarian so this is positive. We also note that Gold is relatively strong against the Dollar. The reverse correlation has eased giving Gold the opportunity to rally even as the Dollar rallies.

 

GOLD Weekly Chart: The weekly PMO has turned back up and the weekly RSI is in positive territory. We could see Gold set new all-time highs next month.

 

GOLD MINERS Golden and Silver Cross Indexes: Gold Miners were down slightly today and it did siphon off a few stocks above their 20-day EMA. However, readings are well above our bullish 50% thresholds and we saw a new LT BULLISH Bias trigger as the GCI moved above its signal line. The rally in Gold is helping. Look for GDX to break out next week.

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CRUDE OIL (USO)

IT Trend Model: BUY as of 7/12/2023

LT Trend Model: BUY as of 8/3/2023

USO Daily Chart: USO rallied this week but saw a pullback today. It didn't compromise the rising trend and with war in the Middle East, Crude is likely to continue higher. Supplies haven't been replenished and production is still tight. Demand may've softened (that was given as the reason we had the big pullback starting in September), but war should keep Crude on a rising trend. Indicators are positive and confirm our bullish stance.

 

USO/$WTIC Weekly Chart: Crude prices may be high, but they haven't reached overhead resistance yet at the 2022 high. The weekly PMO has bottomed above the signal line which is especially bullish in the intermediate term.

 

Good Luck & Good Trading!

Erin Swenlin and Carl Swenlin

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Learn more about DecisionPoint.com:

 

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Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin

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(c) Copyright 2023 DecisionPoint.com

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.

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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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Helpful DecisionPoint Links:

DecisionPoint Alert Chart List

DecisionPoint Golden Cross/Silver Cross Index Chart List

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DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking

Bear Market Rules

 

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Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!

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Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin

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(c) Copyright 2023 DecisionPoint.com

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.

 

Most of you know our Big View product since I often discuss our risk gauges.

I can report to you that our risk gauges show three out of the five with risk off.

Most interestingly, the SPY continues to outperform the long bonds, risk-on.

And junk bonds continue to outperform long bonds, risk on.

You can read more about it on Sunday when Donn and Keith publish their Market Outlook.

Another part of Big View is Sector Views. This part shows you the Economic Modern Family in their individual components.

In the Daily, I have focused mainly on small caps and retail.

Now, I want to show you three of the "kids".

Plus, since commodities are now on everyone's lips, I invite you to watch Your Daily Five segment I did Friday all about that.

Back to the kids.

Sister Semiconductors SMH has been making lower highs since the peak in July. She also trades below the July 6-month calendar range low.

Furthermore, SMH now underperforms SPY and the momentum on Real Motion shows a bearish divergence as momentum is under the moving averages, which are in a bearish phase.

This is a potential game-changer. Should Semi's break September lows, it could get ugly since so much money is in the chip and tech sectors. People love to keep the dollar cost average down. That makes me shudder.

Big Brother Biotech IBB never really got going in 2023. IBB peaked in August 2021 post-covid.

Biotech trades under its 80-month or six to seven-year business cycle as well. This breakdown is concerning and points to much weaker economic times ahead.

And Regional Banks or my dear Prodigal Son?

Well, he has one foot out the door. By that I mean, out of the Family.

Here's why.

When I created the Economic Modern Family, Regional Banks, and not big banks were included as a reliable way to assess the small urban and more rural communities' trends on borrowing money.

A good sign for the economy is when Regional Banks do well and "local" folks are borrowing and successfully paying back loans to expand their lifestyles.

I called the sector Prodigal Son after 2008 because of the bible story. The Banking sector is often lavish, then contrite when it oversteps, costing Americans dollars.

Since March 2023, during the "bank crisis", KRE and many of the companies in that ETF basket have done nothing price-wise.

 

Broadening out the chart to March, since the decline, KRE has traded in a $10 range.

Now, that is a lot better than breaking the March lows if one wants to look at it optimistically.

Nonetheless, the trading range could be more a result of the rest of the market holding up or just a general lack of interest in this sector.

Or it could be a speedbump before the eventual annihilation of Regional Banks.

That would leave me with a new chapter of the Family-do we kill off or merely send away our Prodigal Son?

And do we think KRE should be replaced with big banks or XLF?

Here's where our newest member comes in—Crypto.

But that's an article for another time.

And, if you check out the Crypto Town Hall X Spaces below, you can hear some of our thoughts.

 

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Mish in the Media

Ever thought of owning commodities? Hear what Mish has to say about the key commodities you should consider in this video.

 

Mish participates in Crypto Town Hall X Space. You can sign in to your X account and watch it here.

In this video, Mish talks about trading Garmin Ltd. (GRMN) on Business First AM.

 

Mish and Dale Pinkert discuss the disconnect between news and markets-and how to best invest right now in this video from ForexAnalytix's pre-market show.

 

In this video from CMC Markets, Mish shares her short-term forecast for USD/JPY and popular commodity instruments ahead of the US PPI announcement and September's Fed meeting minutes, with recent dovish comments from Fed officials suggesting a potential shift in the committee's policies.

 

Mish joins Business First AM to discuss the market reaction to the war in Gaza in this video.

 

Mish discusses what's needed for a market bottom on the Financial Sense Newshour podcast with Jim Puplava.

Mish takes over as guest host for David Keller, CMT on the Monday, October 9 edition of StockCharts TV's The Final Bar, where she shares her thoughts in the daily Market Recap during a day of uncertain news.

 

To quote Al Mendez, "The smartest woman in Business Analysis @marketminute [Mish] impresses Charles with her "deep dive" to interpret the present Market direction." See Mish's appearance on Fox Business' Making Money with Charles Payne here!

Mish covers bonds, small caps, transports and commodities-dues for the next moves in this video from Yahoo! Finance.

 

In this video from Real Vision, Mish joins Maggie Lake to share what her framework suggests about junk bonds and investment-grade bonds, what she's watching in commodity markets, and how to structure a portfolio to navigate both bull and bear markets.

 

Mish was interviewed by Kitco News for the article "This Could Be the Last Gasp of the Bond Market Selloff, Which Will be Bullish for Gold Prices", available to read here.

Mish presents a warning in this appearance on BNN Bloomberg's Opening Bell -- before loading up seasonality trades or growth stocks, watch the "inside" sectors of the US economy.

 

Watch Mish and Nicole Petallides discuss how pros and cons working in tandem, plus why commodities are still a thing, in this video from Schwab.

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Coming Up:

October 23: BNN Bloomberg

October 26: Cheddar TV on the NYSE

October 27: Live in-studio with Charles Payne, Fox Business

October 27: Live in-studio with Yahoo Finance!

October 27: Recorded in-studio with Investor's Business Daily

October 29-31: The Money Show

Weekly: Business First AM, CMC Markets

November 1–13 VACATION

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ETF Summary

• S&P 500 (SPY): 417–420 support
• Russell 2000 (IWM): 170 now in the rearview mirror
• Dow (DIA): 332 support pivotal
• Nasdaq (QQQ): 351 recent low and support
• Regional Banks (KRE): 35 next support
• Semiconductors (SMH): 140 support.
• Transportation (IYT): 225 support holding a bright spot
• Biotechnology (IBB): Under 120 so 110 area next support
• Retail (XRT): 57 key support still, maybe this and IYT bright spots—we shall see

 

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Sometimes, a stock's price can tip the market's hand leading up to an earnings report. You'll see a strong rally or decline anywhere from days to months before a company lays bare its books. But when you see a chart pattern that hints at indecision, such as a symmetrical triangle, you're likely in for a volatile move and a great upset, which can go either bullish or bearish.

Such is the case of Tesla (TSLA) over the last quarter. And as you can see, the market's judgment favored the bears.

CHART 1: TSLA STOCK BREAKS BELOW SYMMETRICAL TRIANGLE. TSLA missed earnings expectations, which sent the stock price below the symmetrical triangle. Chart source: StockChartsACP. For educational purposes.

Let's back up, look at the bull and bear case, and take a closer look at the pattern itself, its statistical performance, and, most importantly, how you might have traded it.

The Bull Case

Leading up to Q3 earnings, TSLA appeared to be on a roll. It outperformed its sector, Consumer Discretionary, and the S&P 500 index ($SPX) year-to-date.

TSLA was roughly 37% from its all-time high of $414.50, giving it room for growth. It's the most profitable manufacturer in the EV space, and a lot of hope was riding on the company's emerging Cybertruck production. So was the planned launch of its robo-taxi service in late 2024.

Much was riding on TSLA's guidance as much as its earnings and revenue numbers.

The Bear Case

The bears' case against TSLA's Q3 performance was simple. Demand for big-ticket items slowed in Q3 amid a high inflation environment. Input cost compressed the company's margins, especially in the midst of its expansion plans. Plus, TSLA is facing increased competition in the EV space. Most importantly, TSLA's stock price, some argued, was still trading at a premium relative to other automakers. Overbought? Not technically, but fundamentally so, apparently.

TSLA's Symmetrical Triangle Formation: A 34% Rise or 12% Fall?

TSLA may have outperformed its sector and the broader market before its earnings report, but that changed quickly after the stock price fell (see relative strength against Consumer Discretionary Select Sector SPDR (XLY) and $SPX in the chart below). The Death Cross further muddied the waters. This is where you have to look more closely at the pattern itself.

CHART 2: TSLA PERFORMANCE AGAINST S&P 500 AND XLY. Falling relative strength and the death cross are bearish signals. Chart source: StockChartsACP. For educational purposes.Symmetrical triangles or "coil" patterns are poor performers (according to Thomas Bulkowski's Encyclopedia of Chart Patterns). They indicate a consolidation phase. They can go either direction despite being considered "continuation patterns." (Toss a coin, anyone?).

Their value, however, is that they provide a clear setup for bulls and bears. According to Bulkowski, symmetrical triangles result in the following:

• On average, symmetrical triangles rise 34% when they break upward and fall 12% when they break downward.
• Their success rate in reaching an upward target (using the formation height) is 58% on the upside but only 36% on the downside.
• BUT, symmetrical triangles also tend to reverse after a breakout 62% to 65% of the time, meaning you have to be flexible when trading this pattern.

How To Trade TSLA's Symmetrical Triangle

Depending on whether you were leaning bullish or bearish, you could use Bulkowski's historical average performance to set your targets: 34% to the upside or 12% to the downside.

CHART 3: CALCULATING TSLA'S PRICE TARGET BASED ON MEASURED MOVE. According to the measured move of the symmetrical triangle, TSLA stock can fall as low as $163. Chart source: StockChartsACP. For educational purposes.

Using statistical averages:

• A bullish trader might have calculated 34% of the breakout price, projecting it above the current level. Obviously, that did not pan out, as TSLA broke down.
• On the bear side, the breakdown took place at $250. The target, 12% below that price, would have given you a target of $220. It's a good idea to place a stop loss just above the breakdown level.

Using a measured approach:

• To find the measure, first calculate the pattern's height by subtracting the lowest point from the highest point of the triangle (299.30 – 212.35). This gives you a height of 86.95.
• If the price breakout is upward, then you would add the height (86.95) to the price level of the breakout. Since no upward breakout took place, there's no target. However, the above graph includes where the upside target range might have been if TSLA had broken out toward the upside (red dashed line).
• Since TSLA broke downward at $250, you subtract $86.95 to project a downside target of $163.05 (rounded to $163.00). As you can see, it greatly differs from using the average decline target of 12% (which was reached).

The Bottom Line

Tesla (TSLA) showcased an uncertain path leading up to its Q3 earnings. While the bullish outlook centered on its year-to-date performance, potential growth space, and dominance in the EV industry, the bearish perspective flagged concerns about the slowing demand in the face of inflation, compressed margins amidst expansion, and increasing competition.

The symmetrical triangle pattern, known for its unpredictable behavior, further muddied the waters. However, this pattern offers clear setups for optimistic and skeptical investors. The aftermath witnessed a bearish descent for TSLA, reflecting the market's ultimate judgment and underscoring the importance of flexibility when trading in such patterns.

 

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Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.