Maybe crash is a little too strong to describe today's trading, but looking at it on the 5-minute candlestick chart, at a minimum this was a heavy sell-off to finish the day. Hard to believe the market was up almost 1%. After pulling back from that gap up on the open, price reversed around lunch and began making its way back toward the intraday high. However with less than an hour left in trading, selling began and picked up speed and volume. We saw high volume on the end of day selling and a break down from the Thursday/Friday lows. This in turn set up a bearish double-top with the final 10 minutes of trading confirming it. Based on the height of the pattern, we could see price move to $465 on the SPY.
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MAJOR MARKET INDEXES
SECTORS
Each S&P 500 Index component stock is assigned to one, and only one, of 11 major sectors. This is a snapshot of the Intermediate-Term (Silver Cross) and Long-Term (Golden Cross) Trend Model signal status for those sectors.
RRG® Chart: The daily version of the RRG shows us the strength in XLU right now. This was Friday's "Sector to Watch" in the DP Diamonds Report. Other sectors showing improved relative strength are XLP, XLV and XLRE. We're finally seeing XLY curling back toward Leading, but given the sinking participation within it and XLK, tread lightly. XLB is Leading, but is losing strength. XLE has the most negative position and heading on the chart.
CLICK HEREfor an animated version of the RRG chart.
CLICK HERE for Carl's annotated Sector charts.
THE MARKET (S&P 500)
IT Trend Model: BUY as of 10/18/2021
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: The SPY did see new all-time highs this morning, but as noted in the opening on the 5-minute candlestick chart, price took a dive to finish the day near the lows. This formed a bearish engulfing candlestick. The PMO is still on a crossover BUY signal, but more than likely we will see a SELL signal tomorrow.
Total Volume was extremely high given this is the beginning of holiday trading. We're not sure what to make of it except to say that the majority of it came on the last hour of trading on a steep decline. The RSI is positive but falling and Stochastics have now moved below 80.
Participation: The following chart uses different methodologies for objectively showing the depth and trend of participation for intermediate- and long-term time frames.
- The Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA).
- The Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA).
The SCI on the SPY has topped and today it had a negative crossover its signal line. We don't typically see a lot of those negative crossovers, but when we do, it is generally bad for the market. While readings are still bullish on both the SCI and GCI, they are losing ground. The GCI is in a negative divergence with price.
S&P 500 New 52-Week Highs/Lows: While New Highs expanded on the day, we still see a negative divergence with price on New Highs as well as the 10-DMA of the High-Low Differential.
Climax* Analysis: I was surprised to see that we didn't get climactic readings given the high Total Volume. I note that the Up/Down volume ratios were more elevated that the Down/Up ratios. That is likely due to the mostly positive trading on the day. The VIX has now closed beneath its lower Bollinger Band on the inverted scale. Typically this is good for the market, but we could see something similar to today--a positive day in the morning and negative into the afternoon.
*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 either initiation or exhaustion.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERSOLD.
The STOs haven't turned back up yet but they are in oversold territory. We saw 2% more stocks with rising momentum today, but that still means more than 2/3rds of the SPX have negative momentum. The negative divergences have actually increased in steepness.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM/ITVM are in decline which is a negative divergence with the rising trend of the market. %PMO BUY signals fell off a cliff in October and we still haven't seen them recover. Only 44% of the SPX have crossover BUY signals and looking at the chart above, we know that only 32% have rising momentum which implies that number will continue to shrink.
Bias Assessment: The short-term bias is bearish given participation percentages are below the SCI. %Stocks > 200-EMA is lower than the GCI so it will likely continue even lower. Negative divergences persist.
CONCLUSION: The market is looking more shaky. Heavy volume came in on the final hour of trading. While we expected to see less volatility and sideways price action on holiday trading, today's wild ride tells us that investors aren't on vacation yet. The VIX expanded suggesting those trading right now are getting nervous and I believe they should be. With less than a third of the SPX showing positive momentum, there aren't too many stocks out there to choose from. That in and of itself tells us to beware. Negative divergences are also at issue. If you aren't playing defense yet, it is time. This could be a good time to shore up your portfolio with holiday trading ahead by locking in profits or tightening/setting stops.
I am 75% exposed to the market with 25% being in cash and readily available to trade. I have shuffled some exposure and have tightened most of my stops for protection.
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BITCOIN
Bitcoin broke below the support of the 50-EMA at late October low, but looked like it might rebound. Today the decline continued. The strongest support level is at $52,500 and given the negative indicators, I expect that level to be tested.
INTEREST RATES
Yields are reversing course from last week and remain in rising trends.
10-YEAR T-BOND YIELD
$TNX was up almost six basis points today. We see a symmetrical triangle that is forming. They are continuation patterns and given we have a rising trend out of the August lows, the expectation is an upside breakout. Indicators are looking better, but the PMO is still declining and on a SELL signal.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Carl suggested that the rally in the Dollar could have something to do with Fed Chairman Powell retaining his position. Whatever the reason, indicators remain positive and suggest UUP will rise higher.
This rally broke above the bearish rising wedge which is especially bullish. The follow-through continues.
GOLD
IT Trend Model: BUY as of 10/28/2021
LT Trend Model: BUY as of 11/16/2021
GLD Daily Chart: GLD hit the skids today and gapped down. The indicators were in turn pulled downward leaving us concerned about the future of Gold right now. However, Carl said in today's recording of the DecisionPoint Show that there is a "smile" on the chart of a rounded bottom. This gap down could be forming the handle on a cup. However, the indicators are very weak and they favor more decline.
(Full Disclosure: I own GLD as a "buy and hold" position.)
GOLD Daily Chart: I think that we'll be okay with Gold moving forward, but the rising bottoms trendline may need to be tested before it rallies.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are having a tough time of it given the weakness in Gold prices. Like Gold, the rising bottoms trendline is still intact. However today's decline does take the shine off the reverse head and shoulders we were watching. The RSI is now negative and the SCI is back in decline. Given the drop off in participation, it will likely move lower. Time to evaluate Gold Miner positions. Make sure they are holding their rising trends out of September lows. If not, might be time to bow out and reenter later.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/3/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Price is now in a bullish falling wedge. Stochastics are oversold and beginning to turn around. The RSI is also beginning to rise out of oversold territory.
While this is a good pivot point on the 50-EMA, the strongest support level is at the July highs. We could see those levels tested.
BONDS (TLT)
IT Trend Model: BUY as of 11/8/2021
LT Trend Model: BUY as of 11/4/2021
TLT Daily Chart: The TLT chart had begun to look bullish last week as price reverse off support at the August low. Today decline still has price seated above the 200-EMA. Stochastics flattened, as did the PMO. The RSI has moved into negative territory. The yield charts are looking bullish so TLT may not hold this support level.
Technical Analysis is a windsock, not a crystal ball.
--Erin Swenlin
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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.
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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