In this edition of the GoNoGo Charts show, Alex and Tyler present trend analysis across the asset classes, sectors, and individual securities. The continued strong “Go” conditions in the US Dollar index (UUP) and US Treasury rates ($TNX) on both the daily and weekly timeframes highlights some headwinds for equity indices to move higher.

This video originally premiered on September 14, 2023. Click this link to watch on YouTube.

Learn more about the GoNoGo ACP plug-in with the FREE starter plug-in or the full featured plug-in pack.

Many of the forecasts I hear regarding bonds seem to be based upon what bonds have done for most of the last 40 years without acknowledging what has happened more recently. The chart below shows that 30-Year T-Bonds were in a rising trend from the 1982 low, but in early-2020 they made a long-term top, and began trending downward. That down trend lasted long enough for price to violate the rising trend line, which is strong evidence that the long-term trend has now shifted downward. Technically, we should expect that this down trend will continue for a long time, probably decades.

The problem with long-term charts is that we get to review huge segments of time without experiencing the tedium of the normal real-time market ebb and flow. For example, while the price trend from 1982 was primarily up, there were periods of a year or more when price moved down or sideways, so in spite of the dominant down trend, it is likely that bonds will rally soon, and that the rally may last for quite a while. When that happens, I caution against assuming that the long-term trend is changing to up. Maybe it is, but it probably isn’t.

Conclusion: It is hard for people to abandon investment techniques that have mostly worked for 40 years, but it is clear that the paradigm has shifted, and that a new approach is necessary.

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

(c) Copyright 2023 DecisionPoint.com

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.

Helpful DecisionPoint Links:

DecisionPoint Alert 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

The Russell 2000 ETF (IWM) closed below the 200-day SMA for the first time since, well, June 1st. The last cross was not that long ago and recent crosses simply resulted in whipsaws. Truth be told, 200-day SMA crosses are not that relevant for IWM.

Testing 200-day SMA Crosses for IWM (and SPY)

The chart below shows IWM in the top window and the Percent above MA (1,200,1) indicator in the lower window. This indicator turns green when IWM closes above its 200-day and red when IWM closes below. There were fourteen crosses in the past year alone. Note that this indicator is part of the TIP Indicator Edge Plugin for StockCharts ACP.

IWM 200-day SMA

A dozen crosses and nothing to show makes sense because IWM is stuck in a trading range. Moving averages are trend-following indicators that perform poorly when price moves sideways. The chart above shows IWM trading between 162 and 200 since last September (blue shading). Moving average signals are resulting in whipsaws.

One year is not long enough to decide the efficacy of a moving average cross. As such, I tested the 200-day cross in IWM over the last 20 years. The first test is a long and short test. This means buying/covering on a cross above the 200-day SMA and selling/shorting on a cross below the 200-day SMA. As the top line shows, such a strategy did not work because the Compound Annual Return was -3.02%.

The second line shows a long only strategy and the 200-day cross managed to make some money. Not much though. The Compound Annual Return was a meager 2.09%. This meager return came with a high cost because the Maximum Drawdown was a whopping 38.2%. For comparison, SPY generated at 5.68% Compound Annual Return with a 21.98% Maximum Drawdown. There is some value in SPY signals. As such, I would ignore the 200-day SMA crosses in IWM and pay attention to signals in SPY.

Check out the Chart Trader report at TrendInvestorPro to learn more on current market conditions. Thursday’s report covered:

• risk-on/risk-off dynamics in the market
• lack of participation in two breadth indicators
• a key test for the 20+ Yr Treasury Bond ETF
• a key tech ETF breaks and another teeters
• three defensive stocks with bullish breakouts

 Click here to learn more and gain immediate access.

—————————————

Back in March 2023, I wrote a piece here titled, “Three Signs Employment Is Going to Take a Hit“. It looked at 3 different leading indication relationships that were all calling for a rise in the unemployment rate. This week’s chart takes a closer look at one of those, the message from the inflation rate.

The key insight for understanding this relationship is that the plot of the CPI inflation rate has been shifted forward by 2 years to reveal how the unemployment rate tends to follow in the same footsteps after that lag time. This chart frustrates a lot of classical economists, who believe what they were taught about the Phillips Curve. The Phillips Curve hypothesizes that high unemployment leaves people with less money to spend, and so the economy slows, which brings prices down, curing inflation.

That is the operating philosophy of the Federal Reserve, and it is wrong.

The real relationship is that high inflation brings high unemployment, and low inflation leads to lower unemployment 2 years later. So if you were in charge of the economy, and wanted to ensure maximum employment, what you should do is somehow arrange for zero percent inflation, and then just wait two years.

There have been instances when this model did not work as well. The COVID Crash is an obvious example. That event, and the government’s overwhelming stimulus response, broke a lot of economic models, and understandably so.

We can also see that the 2008-09 economic depression, which followed the so-called “Great Financial Crisis”, brought unemployment at a much higher rate than hinted at by this model. That came about because the Fed was overly aggressive in trying to undo the excesses of Greenspan’s final years as Fed chairman, when he kept rates too low, which fueled the housing bubble. Congress piled on by mandating “mark to market” accounting of distressed assets, which had a positive feedback effect, exacerbating the economic damage.

Even though the magnitude of the 2009 unemployment rate peak was higher than suggested, it did arrive on time according to this model, as did the economic recovery, which matched the waning rate of inflation 2 years before.

Another interesting anomaly came in 2017, when this model said that the unemployment rate was supposed to have bottomed and turned upward, but instead it kept declining all the way to Feb. 2020, when the COVID Crash disrupted the nice correlation. The tax cuts which were implemented in 2017 arguably had a big effect on business confidence, allowing the unemployment rate to keep falling in spite of inflation’s message, but at a cost of seeing the total federal debt rise by between $600 billion to $800 billion per year in 2017-2019. It rose a lot more in 2020 with all of the COVID spending.

Now, in 2023, the CPI spike 2 years ago is saying that we should be expecting a rise in the unemployment rate, but it is slow in getting started. The latest numbers for August showed a rise to 3.8%, up off of the low of 3.4% in January 2023. The CPI inflation rate peaked at 9.1% in June 2022, and so, if the 2-year lag time works perfectly, then that would mean a peak for the unemployment rate in June 2024. You can bet that unemployment will be a big topic in the upcoming presidential debates ahead of the November 2024 election.

The unknown part of this is how much response we will see in the unemployment rate, which is thus far being slow to start its rise. The extra post-COVID stimulus may have been responsible for keeping companies full of cash to keep on their employees, albeit at a cost of having the total federal debt rise by more than $2 trillion versus a year before.

The latest CPI data just released on Sep. 13, 2023 showed CPI rising 3.7% versus a year ago. This is not good news for the future employment prospects 2 years from now, once the 2-year lag time goes by. The Federal Reserve is not even reaching its illegal mandate of 2% inflation, despite raising rates up so high that it has effectively killed the real estate market.

I am not speaking lightly when I say that the Fed’s 2% inflation target is illegal. Most people, including Federal Reserve staffers, seem unaware that Congress passed an actual statute back in 1978 mandating that once the inflation rate got back down below 3%, then the Fed’s inflation target rate would be “zero per centum”.

Now admittedly, it is tough to expect the Fed to accomplish that using the limited tools it has, especially when Congress goes throwing around so much deficit spending to “help” the economy. In that circumstance, it is not the Fed’s proper role to adjust its own target illegally to 2% (which it is still not meeting). If Congress is mandating a target that the Fed cannot meet because of Congress’ own deficit spending, then the proper action is for the FOMC members to either ask Congress for a different target, or tell Congress that they cannot comply with that law and must resign. I don’t expect that to happen any time soon.

But next time you hear anyone talking about “the Fed’s 2% inflation target”, please kindly inform such people that, by statute, the Fed’s statutory target is actually zero. And if we could actually get inflation down to 0%, then that would be good for the jobs market, 2 years later.

I doubt any of our readers are too surprised by the CPI reading coming in a bit hotter than expected.

The bulk of it was in energy costs. Food costs were, mixed with bread and meat, up, while eggs and milk were down. Services inflation was up slightly, while shelter costs were down slightly. All in all, without some black swan event, we can begin to look for normalization of interest rates to core inflation.

Most economists and analysts believe that the federal-funds effective rate target will hold steady at its current range of 5.25% to 5.50% With core inflation close to the current fed funds rate, many economists are talking about a normalization, or a point where the rates are high enough to control inflation. If that is true, it seems to us that the public will have to switch the mindset from rate cuts to rate pause at around 5%, as this is more in line with a healthier economy.

As long as the S&P 500 outperforms long bonds (TLT), risk is on.

Was there damage from the rapid rise in rates? Sure. Nonetheless, we do not want rates much lower — nor do we want them higher. What we want is a long duration at the current levels of inflation and interest rates, with no surprises.

Of course, that is the rub. No surprise means wage inflation and strikes, geopolitics, BRICS, mother nature, trade wars and so on all must behave. This is why we are monitoring the TLTs so carefully, especially as they perform against the benchmark.

Our Leadership indicator shows TLT still underperforming the SPY. Our Real Motion indicator shows a mean reversion in momentum that happened in late to mid-August. Interestingly, it corresponded with a bottom in the TLT, which, to date, is holding up. The momentum phase is bearish along with price.

We want to see the momentum and price flatline, neither spiking higher nor going lower from here.

On price, the July 6-month calendar range low is well overhead at 98.80. Ideally, to see a good rally in the indices, we want that normalization. But we don’t always get what we want, right?

Maybe the Fed has…

And maybe this is the calm before the storm.

This is for educational purposes only. Trading comes with risk.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at Benny@MGAMLLC.com.

“I grew my money tree and so can you!” – Mish Schneider

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

Mish in the Media

Mish discusses AAPL in the wake of the iPhone 15 announcement on Business First AM.

Mish explains how to follow the numbers in oil, gas, gold, indices, and the dollar daytrading the CPI in this video from CMC Markets.

Mish talks commodities, and how growth could fall while raw materials could run after CPI, in this appearance on BNN Bloomberg.

In this appearance on Fox Business’ Making Money with Charles Payne, Mish and Charles discuss the normalization of rates and the benefit, plus stocks/ETFs to buy.

Mish chats about sugar, geopolitics, social unrest and inflation in this video from CNBC Asia.

Mish talks inflation that could lead to recession on Singapore Breakfast Radio.

Coming Up:

September 14: Mario Nawfal Twitter Spaces

October 29-31: The Money Show

ETF Summary

• S&P 500 (SPY): 440 support, 458 resistance.
• Russell 2000 (IWM): 185 pivotal, 180 support.
• Dow (DIA): 347 pivotal.
• Nasdaq (QQQ): 363 support, over 375 looks better.
• Regional banks (KRE): 44 pivotal.
• Semiconductors (SMH): 150-161 range to watch.
• Transportation (IYT): Needs to get back over 247 to look healthier.
• Biotechnology (IBB): Compression between 124-130.
• Retail (XRT): 62.90, the July calendar range low, broke down, along with IYT — 2 negative signs and an indication of stress on the consumer.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

In this edition of StockCharts TV‘s The Final Bar, guest Julius de Kempenaer of RRG Research shows how his market visualizations still show stocks over bonds and offense over defense. Host David Keller, CMT highlights one industry sector breaking down due to higher crude oil prices.

This video originally premiered on September 13, 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.

In this week’s edition of StockCharts TV‘s Halftime, Pete reviews 6 ETFs that are in different stages of trends. Two in the banking sector are in downtrends that are undeniable: KRE and KBE. This review ties in the recent commentary from Jamie Dimon, the CEO of JP Morgan. With that, Pete reviews the banking sector and the upcoming Fed meeting. Charting the course for Fed moves, Pete pulls up the Fed Funds rate compared to the unemployment rate; it shows a consistent pattern that he points out as “one to watch” if things change. To round out the show, he reviews the equal-weight ratio of the consumer discretionary and the consumer staple funds; he then reviews the chart of NVDA, showing four gaps — one which is close to occurring, and one that would not be welcomed if it were to occur.

This video originally premiered on September 13, 2023. You can watch on our dedicated Halftime by Chaikin Analytics page on StockCharts TV, or click this link to watch on YouTube.

You can view all previously recorded episodes of Halftime by Chaikin Analytics with Pete Carmasino at this link.

In June, we wrote about the bottom in oil and cannabis through USO and MSOS (ETFs) respectively. In July, we wrote about the potential top in NASDAQ and SPY. In August, we wrote about the importance of the retail sector; XRT is below the July calendar range and a major reason the market is yet to make new highs.

All year, we have been on the inflation trade through agriculturals and energy.

Last week, Mish spoke about sugar futures on CNBC Asia and the barometer that it provides traders to gauge inflation. Over the weekend, we wrote about the potential bottom in natural gas.

No inflation you say? That -12% deflationary drag we saw in July CPI, which we saw only as a normal volatile correction in inflation, well that is all gone now.

So, what is next?

The metals seem to be languishing, almost not believing the longer-term impact of what oil and particularly sugar futures have done. Today, we turn our attention to another potential widow maker perhaps ready to resurrect: Gold Miners (GDX).

GDX has been difficult to trade all year. The ETF is a sell when it looks amazing and a buy when it looks horrid.

Top 5 holdings:

• Newmont Corporation: 9.95%
• Barrick Gold Corporation: 9.01%
• Franco-Nevada Corporation: 8.73%
• Agnico Eagle Mines Limited: 7.54%
• Wheaton Precious Metals Corp: 6.11%

Does GDX look horrid enough to consider a buy?

Our Leadership indicator shows GDX is beginning to outperform the SPY. If we are looking for more confirmation, we also want to see the Leadership blue line clear not only the red line, but also the Bollinger Band. Our Real Motion indicator shows a mean reversion in momentum that happened in late to mid-August. However, in a bearish phase along with price, we also want to see the red dotted line cross back over the 50-DMA (blue line).

On price, interestingly, the July 6-month calendar range low and the 10-day moving average align. Recent highs could not clear the overhead 50-DMA, now sitting at around 29.70. With CPI coming on in the morning, this is one ETF that has our attention.

This is for educational purposes only. Trading comes with risk.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at Benny@MGAMLLC.com.

“I grew my money tree and so can you!” – Mish Schneider

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.

Mish in the Media

Mish talks commodities, and how growth could fall while raw materials could run after CPI, in this appearance on BNN Bloomberg.

In this appearance on Fox Business’ Making Money with Charles Payne, Mish and Charles discuss the normalization of rates and the benefit, plus stocks/ETFs to buy.

Mish chats about sugar, geopolitics, social unrest and inflation in this video from CNBC Asia.

Mish talks inflation that could lead to recession on Singapore Breakfast Radio.

“It seems like everybody is cutting back their [oil] production to keep prices higher,” Mish says in this video from CMC Markets. She kicks off her commodities roundup with a look at US oil benchmark West Texas Intermediate (WTI) before moving on to natural gas and gold.

Mish talks her “Worst, Best, and Next” trades in this video from Business First AM.

Coming Up:

September 13: Investing with IBD podcast & Futures Edge podcast with Bob Iaccino; Charting Forward made available on StockCharts TV

September 13-14: Mario Nawfal Twitter Spaces

October 29-31: The Money Show

ETF Summary

• S&P 500 (SPY): 440 support, 458 resistance.
• Russell 2000 (IWM): 185 pivotal.
• Dow (DIA): 347 pivotal.
• Nasdaq (QQQ): 363 support, over 375 looks better.
• Regional Banks (KRE): 44 pivotal.
• Semiconductors (SMH): 150-161 range to watch.
• Transportation (IYT): Needs to get back over 247 to look healthier.
• Biotechnology (IBB): Compression between 124-130.
• Retail (XRT): 62.90, the July calendar range low, broke down, along with IYT — 2 negative signs.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

In Monday’s DecisionPoint Trading Room we discussed that Technology (XLK) was the last one standing on our Bias Scoreboard with a Bullish Bias in both the intermediate term and long term. Today that bullish bias was lost in both timeframes. When the Silver Cross Index drops below its signal line, it is a “Bearish Shift” that moves the IT Bias to “Bearish”. When the Golden Cross Index drops below its signal line, it moves the LT Bias to “Bearish” on a Bearish Shift.

The Price Momentum Oscillator (PMO) is in decline again and is headed for a Crossover SELL Signal. Most concerning is the complete loss of participation. %Stocks > 20/50/200EMAs have seen declines since the sector topped at the beginning of September. We would easily read the ST Bias as “Bearish” given %Stocks > 20/50EMAs are below our bullish 50% threshold.

Adding insult to injury are the RSI dipping below net neutral (50) and Stochastics which are falling fast.

Conclusion: Technology tends to lead the market and in this case it should lead the market lower. Indicators are falling with the PMO nearing a SELL Signal. Relative strength has been failing and the loss of the Bullish Bias in both the IT and LT suggest this is not a sector to rely on in your portfolio.

Learn more about DecisionPoint.com:

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

Try us out for two weeks with a trial subscription!

Use coupon code: DPTRIAL2 at checkout!

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

(c) Copyright 2023 DecisionPoint.com

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.

Helpful DecisionPoint Links:

DecisionPoint Alert Chart List

DecisionPoint Golden Cross/Silver Cross Index Chart List

DecisionPoint Sector Chart List

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

In this edition of StockCharts TV‘s The Final Bar, David Cox, CFA CMT of Raymond James reviews underperformance for defensive sectors like Utilities and describes why commodities should be an area of focus for investors. Host David Keller, CMT reviews today’s drop in ORCL and AAPL as well as one value sector showing signs of emerging strength.

This video originally premiered on September 12, 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.