The Fed’s rate cuts set the real estate world abuzz, with lower mortgage rates giving homebuyers a little more breathing room. According to the Case-Shiller housing data released on Tuesday, home prices rose 5% in August. Nevertheless, Wall Street expects demand to increase slowly.

The proof? Take a look at the market. The Sector Summary Data Panel on your StockCharts Dashboard displays the performance of the S&P 500 sectors. The image below looks at a three-month performance.

FIGURE 1. SECTOR SUMMARY. Over the last three months, real estate has been the top-performing sector.Image source: StockCharts.com. For educational purposes.

Looking at Real Estate Select Sector SPDR Fund (XLRE) as the sector proxy, you can see that capital has been flowing into real estate stocks over a period of months as Wall Street has been betting on the Fed cutting rates—and it finally happened last week. Below is a weekly chart of XLRE.

CHART 1. WEEKLY CHART OF XLRE. Note that the Distance From 52-Week Highs indicator, which is available in StockChartsACP, indicates XLRE is very close to its one year high.Chart source: StockChartsACP. For educational purposes.

Note the following details:

• XLRE’s all-time high is at $47.53 (adjusted for dividends), which is not too far from where the ETF is trading.
• Looking at the Distance From Highs indicator, XLRE is about 0.4% below its 52-week high—answering the question “What does Wall Street think of the real estate sector’s prospects in the coming months?”
• The StockCharts Technical Rank (SCTR, pronounced “scooter”) line is currently above the 90 line (see red horizontal line on the SCTR indicator), meaning that multiple indicators are bullish across several timeframes.

XLRE has been on a roll, but the big question is—has the real estate rally run its course, or does it still have enough momentum to breach its 52-week high?

Let’s look at a daily chart of XLRE using SharpCharts.

CHART 2. DAILY CHART OF XLRE. There’s lots of space to pull back before the uptrend calls it quits.Chart source: StockCharts.com. For educational purposes.

After bottoming out in April, XLRE has been climbing and is just 0.4% away from its 52-week high—$45.04 (adjusted for dividends). Last week’s tiny pullback stayed within the first Quadrant Line, signaling strength.

Signals are mixed, however: while the On Balance Volume (OBV) indicator shows solid buying pressure, the Money Flow Index (MFI), which operates like a volume-weighted Relative Strength Index (RSI),  suggests otherwise. With prices rising and buying pressure dropping—a bearish divergence—a short-term dip might be on the horizon. If XLRE falls, look to the area within the orange circle as a wide potential support range. More specifically…

• The 50-day simple moving average (SMA) may climb to the space between the first and second quadrant lines (25% to 50% retracement, respectively); both the 50-day SMA and the first and second quadrants serve as a favorable support area to buy into strength.
• The Ichimoku Cloud, which is currently bullish, projects a deeper range of potential support within the next 26 days. The lowest point currently matches the 75% range of the quadrant line (third quadrant).
• If XLRE falls below the third quadrant, marking a 75% retracement, the current uptrend could be in trouble. In this case, it might be time to pause and reassess the technical and fundamental situation before proceeding with any trades.

Closing Bell

The real estate sector has been riding high before and after the latest Fed’s rate cut. Based on the market action, Wall Street has been bullish. However, momentum seems mixed, hinting at a possible short-term breather. If this occurs, watch key support levels to distinguish strong buying opportunities from danger zones.

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.

In this video from StockCharts TV, Julius assesses current rotations in asset classes and US sectors using Relative Rotation Graphs, finding a lot of contradictory behavior. Taking a step back, he focuses on the weekly timeframe to find some more meaningful trends and shy away from day-to-day noise. He then compares the current rotations and setups in price charts with those that occurred at the end of 2021 and moving into 2022, noting some strong analogies that warrant a continued cautious approach to the markets.

This video was originally published on September 24, 2024. Click anywhere on the icon above to view on our dedicated page for Julius.

Past episodes of Julius’ shows can be found here.

#StayAlert, -Julius

In today’s free DP Trading Room Carl reviews the charts of two new members to the SP500, Dell (DELL) and Palantir (PLTR). Are they poised to break out on this news?

Carl also discussed the inflation on housing prices to open the show. Before going over the signal tables that reveal a clear bull market bias to the market right now.

Carl also gives us his take on the current trend and condition of the market and reviewed key areas of the market like Bonds and Yields, Crude Oil, the Dollar and the recent breakout move in Gold.

The Magnificent Seven are moving in different directions. See which stocks are configured bullishly and which are configured bearishly.

Erin jumps in with a review of sector rotation. How are defensive groups faring and what about big growth areas like Technology and Communication Services?

The pair finish with looking at viewer symbol requests.

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00:57 Housing Inflation

01:45 DP Signal Tables

04:03 Market Overview

13:56 Magnificent Seven

21:35 Two New Stocks in SP500

29:33 Sector Rotation

33:40 Symbol Requests

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

(c) Copyright 2024 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:

Trend Models

Price Momentum Oscillator (PMO)

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Bear Market Rules

Good morning and welcome to this week’s Flight Path. Equities saw the “Go” trend remain strong with an uninterrupted week of strong blue “Go” bars. Treasury bond prices remained in the “Go” trend as well but we saw weaker aqua bars as the week ended. U.S. commodities returned to a “Go” trend but the indicator painted weaker aqua bars this week. The dollar held on to its strong “NoGo” trend with purple bars.

$SPY Hits New Highs in “Go” Trend

The GoNoGo chart below shows that this week the “Go” trend remained strong as we saw blue bars all week. Price rallied from the last low to set a new higher high which is a good sign for the bulls. GoNoGo Oscillator remained in positive territory and volume increased as we saw it climb further from the zero line. Now, with a “Go” trend in place and momentum in positive territory but not yet overbought, we will look to see if price continues higher.

The longer time frame chart tells us that the “Go” trend is still very much in place. With another strong blue bar and a higher weekly close we can now see the drop in August as a higher low. GoNoGo Oscillator is in positive territory at a value of 3 so not yet overbought. We will look for price to consolidate at these highs and provide a base of support going forward.

“NoGo” Trend Continues on Weaker Pink Bars

Treasury bond yields rose from a new low at the beginning of the week and painted a string of weaker pink “NoGo” bars as price rallied. After setting a new lower low, we will watch to see if price rolls over this week and we see a new lower high. GoNoGo Oscillator is testing the zero level from below and this will be helpful in informing us as to whether the discussed scenario will play out. If the oscillator gets rejected and falls back into negative territory, we will know that momentum is resurgent in the direction of the “NoGo” trend and we will look for trend continuation to the downside.

The Dollar Remains in Strong “NoGo”

Although price has moved mostly sideways this past week staying in a longer trading range, GoNoGo Trend continues to paint strong purple “NoGo” bars. If we look at the GoNoGo Oscillator in the lower panel, we can see that it has struggled to move away from the zero level into positive territory, returning quickly to that level. Now, we see a new GoNoGo Squeeze beginning to build and we will watch to see in which direction it breaks. If it breaks back into negative territory then we will expect trend continuation to the downside.

So the first Fed rate cut is behind us, and we are no longer in a “higher for longer” period, but in a new rate cut cycle which will most likely last well into 2025.  So that’s good news for stocks, right?  Well, not necessarily.

The reality is that rate cut cycles do not happen very often.  On average, there’s one rate cut cycle about every ten years.  This is because the Fed raises and lowers rates in line with the economic cycle.  When the economy is growing, they can raise rates to keep growth in check.  And when the economy starts to slow down, they can lower rates to encourage spending and economic growth.

The chart above shows the S&P 500 index along with the Effective Fed Funds Rate.  I’ve added blue vertical lines to identify when the Fed made their first rate cut in each cycle.  So why are seasoned investment professionals a little hesitant to break out the champagne after the first rate cut this week?  Because they remember years like 2001 and 2007, when the stock market pushed lower for months and months after that first decision.

Now, to be fair, the S&P did move higher for about 6-7 months after the first rate cut in 2019.  The COVID-19 pandemic changed the game in many ways, so it’s impossible to gauge whether the markets would have gone higher without that market-changing event.  But generally speaking, stocks have often moved lower after the first rate cut decision.

To paint a more complete picture of the relationship between interest rates and stock market performance, let’s also look at the shape of the yield curve.  Our next chart shows the spread between the Ten Year Treasury Yield and the Two Year Treasury Yield, commonly known as “2s vs 10s” in the industry.

The top panel shows the different between the 10-year yield and the 2-year yield.  I’ve added a purple horizontal line right at the zero level, because when the ratio dips below this point, we have what’s known as an inverted yield curve.  I’ve also added red vertical lines to show when the yield curve had been inverted, but had switched to a more normalized shape.  The orange shaded areas denote recessionary periods, and the bottom panel shows the S&P 500 for reference.

Note how pretty much every recession has seen a similar chain of events.  First, the yield curve becomes inverted as fixed income investors become less optimistic about future economic growth.  Eventually, the yield curve returns to a normal shape, and soon after, the stock market begins to drop as the economy dips into a recession.

Now, does all of this mean we are guaranteed to see lower stock prices as we’ve seen when similar patterns emerge?  Of course not.  Remember, interest rates and the Fed are just part of a rich, dynamic, complex system of indicators to help us understand the market environment.  

But if history provides any lesson here, it’s that a rate cut cycle has usually been very good for stocks, but not immediately.  Mindful investors should remain vigilant, watching for signs of a potential downtrend, and focusing on areas of the market still showing relative strength in light of market uncertainties.

RR#6,

Dave

PS- Ready to upgrade your investment process?  Check out my free behavioral investing course!

David Keller, CMT

President and Chief Strategist

Sierra Alpha Research LLC

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.  

The author does not have a position in mentioned securities at the time of publication.    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.

In this StockCharts TV video, Mary Ellen reviews the broader markets after last week’s rate-cut induced rally. She also shares stocks that are breaking out of bases and poised to trade higher. The “nuclear renaissance” is also discussed, as well as stocks that will benefit the most.

This video originally premiered September 20, 2024. You can watch it on our dedicated page for Mary Ellen on StockCharts TV.

New videos from Mary Ellen premiere weekly on Fridays. You can view all previously recorded episodes at this link.

If you’re looking for stocks to invest in, be sure to check out the MEM Edge Report! This report gives you detailed information on the top sectors, industries and stocks so you can make informed investment decisions.

The Federal Reserve’s interest rate cut decision on Wednesday was like receiving a gift from a wish list. When the rate cut was announced, the market initially rose, acting surprised by the decision. But the excitement fizzled off as the market closed lower on that day. The next day, buyers were back, but Friday’s action had more selling than buying. You have to cut it some slack, though, given it was triple witching Friday—the expiration of stock options, index options, and index futures. It’s not unusual to see elevated trading activity as traders work on unloading positions or rolling them out to a future date.

In spite of the stock market’s up and down movement, the broader market indexes didn’t take too much of a hit. The S&P 500 ($SPX) and Nasdaq Composite ($COMPQ) closed just a hair lower, while the Dow Jones Industrial Average ($INDU) closed slightly higher, notching an all-time record close.

Let’s unpack the charts of the broader indexes, starting with the S&P 500.

S&P 500 Breaks Above Resistance

The large-cap S&P 500 index broke above the resistance of its slightly downward-sloping trendline. The daily chart below shows that market breadth in equities is improving. Note that three market breadth indicators are displayed in the lower panels below the price chart.

CHART 1. DAILY CHART OF THE S&P 500. The large-cap index still has momentum with market breadth indicators confirming bullish strength.Chart source: StockCharts.com. For educational purposes.

The S&P 500 Bullish Percent Index ($BPSPX) is at 77, the NYSE Advance-Decline Line is rising, and the percent of S&P 500 stocks trading above their 200-day moving average is at 76.60. All three indicators confirm bullish momentum in the S&P 500.

The Nasdaq Composite

The Tech-heavy Nasdaq ($COMPQ) has also broken above the resistance of its downtrend line, but, unlike the S&P 500, it didn’t close at a new all-time high this week. Its market breadth isn’t as strong as that of the S&P 500, as is visible in the market breadth indicators in the lower panels.

CHART 2. DAILY CHART OF NASDAQ COMPOSITE. The Nasdaq is trading around its August high. If it breaks above that level and market breadth continues to expand, it would confirm a bullish move.Chart source: StockCharts.com. For educational purposes.

The BPI for the Nasdaq is at 54.85, which is slightly bullish. The percentage of Nasdaq stocks that are trading above their 200-day moving average is at 44.23, while the Nasdaq Advance-Decline Line is rising. So overall market breadth for the Nasdaq doesn’t confirm an uptrend as strongly as one in the S&P 500.

The Nasdaq Composite is trading close to its August high. A break above this would confirm a bullish move, so it’s worth adding this chart to your ChartLists.

The Dow Jones Industrial Average

The granddaddy of the indexes has been marching higher closing at a new all-time high (see chart below). After pulling back in early September, the Dow has taken the lead.

CHART 3. DAILY CHART OF DOW JONES INDUSTRIAL AVERAGE. The index closed at a record high and market breadth indicators point to strong bullish pressure.Chart source: StockCharts.com. For educational purposes.

The DJIA BPI is above 80 and trending higher, the percentage of Dow stocks trading above their 200-day moving average is relatively flat, and the Dow Advance-Decline line continues to rise higher. All three breadth indicators confirm the Dow is bullish.

The takeaway: The three broad indexes are up for the month. There’s a week and a day remaining this month. Will this September buck the seasonality trend?

Bonds, Gold, Oil

Bond prices have fallen since the Fed’s decision, possibly because the stock market is still coming to grips with the news. The chart of the iShares 20+ Year Treasury Bond (TLT) below shows that TLT is close to a support level.

CHART 4. BOND PRICES FALL BUT COULD FIND STABILITY SOON. Watch bond prices at the nearest support level.Chart source: StockCharts.com. For educational purposes.

If it stabilizes at this level and turns higher, it could present an opportunity to allocate a portion of your portfolio to bonds.  

Meanwhile, commodities are showing upside price movement. Gold prices continue to rise, closing at an all-time high on Friday. Oil prices are off their lows, although they are still in a downtrend. The Energy Select Sector SPDR Fund (XLE) is at its 200-day moving average. Let’s see if it breaks above it next week. Energy was the leading sector for the week. And don’t ignore Utilities; the sector was the leading sector on Friday and could be poised for more upside movement.

In the Tech Front…

The week ended on interesting news. Talks of a Qualcomm (QCOM) takeover of Intel (INTC) surfaced on Friday. Shares of INTC traded higher on the news. This could impact chip stocks, which have had a rough ride of late. Another chip company we’ll hear about next week is Micron Technology (MU), which reports earnings next week. The rumor is that there may be some negative news. Micron has taken a beating since June, and technically, the chart looks ugly.

End of Week Wrap Up

• S&P 500 closed up 1.36% for the week, at 5702.55, Dow Jones Industrial Average up 1.62% for the week at 31,063.36; Nasdaq Composite closed up 1.49% for the week at 17948.32
• $VIX down 2.48% for the week closing at 16.15
• Best performing sector for the week: Energy
• Worst performing sector for the week: Real Estate
• Top 5 Large Cap SCTR stocks: Insmed Inc. (INSM); Carvana (CVNA); Applovin Corp (APP); Cava Group (CAVA); FTAI Aviation Ltd. (FTAI)

On the Radar Next Week

• August New Home Sales
• Q2 GDP Growth Rate
• August Durable Goods Orders
• Speeches from Chairman Powell and other Fed officials
• August Personal Consumption Expenditure (PCE)
• Micron (MU) Earnings

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.

First of all, I apologize for my absence this week. I caught something that looked like Covid, and felt like Covid, but it did not identify (pun intended) as Covid. Apart from feeling lousy, also my voice was gone, so making a video was not a good idea.

I am getting back into the trenches now (not 100% yet), at least with this short article, after an eventful week marked by a historic interest rate decision.

What’s happening in sector rotation?

The weekly Relative Rotation Graph for US sectors above largely shows a continuation of the rotations set in motion a few weeks ago.

There has been a small increase in the energy and Communication Services sectors. Energy is far to the left inside the lagging quadrant and, based on RS-Ratio, the weakest sector at the moment. Communication Services is very close to the benchmark and on a very short tail, which has also been pretty erratic over the last few weeks.

The Real Estate sector inside the leading quadrant lost some steam (upside momentum), but based on RS-Ratio, it is still the strongest sector.

All other sectors remain on the same trajectory, with XLU, XLP, XLF, and XLV leading the dance into the leading quadrant. When slicing the sector universe into offensive, defensive, and sensitive, this means that all defensive sectors are inside the leading quadrant and traveling at a strong RRG heading.

Then, there are two offensive sectors also inside the leading quadrant: Financials and Real Estate, which are also very interest rate-driven sectors.

All sensitive sectors (XLI, XLE, XLK, XLC) are on the left hand side of the graph with only XLI showing a positive RRG heading.

Dilemma

But here’s my dilemma: The market’s response has been pretty bullish so far, with SPY breaking through overhead resistance this week. It pretty much ignores the defensive sector rotation but also the strong negative divergences between price and RSI/MACD.

So, do I go with the flow in the upward break and call off any risk for corrective action? Or do I stand by the analysis from a defensive sector rotation and pretty strong divergence signals from classical technical indicators for a little longer and try to see through the current bullishness?

Here’s the S&P chart, which shows the run-up to the late 2021 peak and the current market behavior.

The two charts above show the market behavior of 2021 up to the week of the upward break aligned with the current market.

These two RRGs show the rotation for defensive sectors around the peak in 2021-22 and the current.

Price Pays, but Don’t Bet The Farm

I am the first to admit that price pays, and you cannot buy the RSI or the MACD. Still, history makes me think that long-lasting negative divergences between price and these indicators, as we see them now, have proven to be pretty reliable—reliable enough for me not to go all-in and bet the farm on the upside.

Combine that with the current defensive sector rotation and the strong resemblance to the setup shortly before the market peaked in early 2022, and I strongly lean toward a “Let’s see how this plays out in coming weeks” approach.

#StayAlert (and don’t get sick ;), have a great weekend. –Julius

Sentiment indicators are contrarian, meaning that when the majority of investors are bullish on the a market, it is bearish for that market. Most investors are aware of several sentiment indicators that relate to the stock market, but they may not be aware that there is a sentiment indicator for gold. It is derived from the closed-end fund, Sprott Physical Gold Trust (PHYS).

Let’s quickly review how mutual funds work. An open-end fund processes contributions and redemptions while the market is open. After the market closes, it calculates the net asset value (NAV) per share. Closed-end funds normally do not process new contributions and redemptions, rather their assets are fixed, and they trade on the stock market like stocks. Because of this, their price can be bid higher or lower throughout the market day, and they can sell at a premium or discount the their NAV.

On the daily chart below we can see sentiment panel, which shows that PHYS has been selling at a discount for at least a year. This means that investors are still reluctant to buy gold (bearish) even though gold has been making new, all-time highs. This is clearly bullish for gold.

On the weekly chart, we see that gold was selling at a small premium (green bars) a handful of times in the five years shown. Otherwise it sold at a discount, while price advanced +82% during the period shown.

On the monthly chart we can see that during the parabolic advance from 2005 to 2011, in 2010 the gold held by PHYS was selling at premium of about +14%. Which is nuts. It continued selling at a premium for almost two years after the 2011 top, and it ultimately declined -46%.

Conclusion: Sentiment indicators are not precise timing tools, but in this case premium/discount analysis is an excellent method for assessing when investors in the gold market are too bullish or bearish.

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

(c) Copyright 2024 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:

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

f

On August 5, we featured Carvana (CVNA), which at the time took the top StockCharts Technical Rank (SCTR) spot for the Large Cap Top 10. The stock has pulled back since then, but is now gaining traction. Perhaps the Fed’s decision to cut interest rates by half a percentage point added some fuel to the stock. With lower interest rates, people may be more inclined to get auto loans.

On Thursday, CVNA secured a third-place position in the Large Cap Top 10 SCTR scores. Let’s consider where CVNA is now and whether it’s worth adding positions to your portfolio.

FIGURE 1. SCTR REPORT FOR SEPTEMBER 19. Carvana is in third place. Will it retake its gold medal position?Image source: StockCharts.com. For educational purposes.

Carvana Stock Analysis

We’ll start with an analysis of CVNA’s weekly chart (see below).

FIGURE 2. WEEKLY CHART OF CARVANA STOCK PRICE. The uptrend is still holding and the SCTR score is just above 99. The RSI is at the 70 level, which means there’s room for the stock price to move higher.Chart source: StockCharts.com. For educational purposes.

Carvana’s uptrend in the weekly chart is still intact. It’s trading above the blue dashed trendline, and, so far, the series of higher highs and higher lows is still holding. The SCTR score is at 99, a level that has sustained since February 2024. The relative strength index (RSI) is just at the 70 level.

Is it worth buying Carvana now? Let’s analyze Carvana stock’s daily price action (see below).

FIGURE 3. DAILY CHART OF CARVANA. A break above the top trendline is a positive move for the stock. If volume increases, buying pressure remains strong, and price momentum supports an up move, Carvana could move much higher.Chart source: StockCharts.com. For educational purposes.

After its August–September pullback, a new trendline had to be created to account for the September low. CVNA stock is still in an uptrend, displaying a series of higher highs and higher lows. The stock price has broken through the upper channel line. You must ensure that momentum is strong to support a follow-through in price.

The weekly chart shows that CVNA’s stock price could move up to the next Fibonacci retracement, the 50% level. The Chaikin Money Flow (CMF) indicates that buying pressure is still strong, and the Moving Average Convergence/Divergence (MACD) oscillator shows that momentum is increasing. Both indicators support an upward move in CVNA’s stock price. Volume has increased in the last few days, but it needs to remain above average while Carvana’s stock price rises.

When Should You Buy Carvana Stock?

The break above the upper channel would be an ideal entry point for a long position. The stock can potentially move to $189, the first Fibonacci retracement level on the weekly chart. If the stock market is bullish and momentum remains strong enough to push the stock price higher, CVNA could move even higher.

When Should You Exit Carvana Stock?

If Carvana breaks below the upper trendline and falls back into the channel with slowing momentum, exit the trade. You may have another opportunity to enter the trade at a later time. If Carvana’s stock price continues to rise, place a trailing stop and be prepared to exit at least some of your positions if the stop gets violated.

The bottom line. Add the daily and weekly CVNA charts to your StockCharts ChartLists and continue to monitor them. The weekly chart clearly shows support and resistance levels, which will help to set your profit targets. Set StockCharts Alerts to notify you when specific price levels are hit.

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.