A businessinsider.com article begins: An "extremely rare" signal just flashed in the stock market, suggesting to Carson Group chief market strategist Ryan Detrick that record highs are imminent. Detrick highlighted in a Thursday note that more than 60% of all components in the S&P 500 hit a new 20-day high last week.
It goes on to say that prior to last week there have been 15 of these signals since 1972, and in every case the S&P 500 was higher by an average of 18% one year later.
This sounds pretty fantastic, but let's take a deep breath. To begin, we agree that a breadth thrust this broad is a valid indicator, and that it has positive implications for the stock market. That the signal so far has never failed to deliver positive returns, we think it is inevitable that that record will be broken eventually. Nevertheless, that is a very impressive record and bears watching.
As for the 18% return, that is an average. This time it could deliver a lot less . . . or a lot more. Also, there is no guarantee that the gains will be accomplished by a steady one-year advance. It could be a rocky ride that eventually ends well.
To be clear, we think this is a nice piece of research and good positive evidence to consider in our market analysis. We just want to encourage readers to use caution in regard to how they use it.
--Carl Swenlin
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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MARKET/INDUSTRY GROUP/SECTOR INDEXES
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THE MARKET (S&P 500)
IT Trend Model: BUY as of 11/14/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: The market continues to move higher, picking up where it left off last week. The PMO is rising again forming a "surge" above the signal line.
The VIX remains overbought on our inverted scale. Investors are complacent, not surprisingly given market action. Stochastics have popped back up above 80 suggesting clear internal strength.
SPY Weekly Chart: We typically do not include a weekly chart except on Fridays, but SPY is less than two percent away from making new all-time highs.
Here is the latest recording from 12/4 (no trading room on 12/11):
S&P 500 New 52-Week Highs/Lows: New Highs expanded today but they are lower than two weeks ago, setting up a negative divergence. There is a longer-term negative divergence as well.
Climax* Analysis: There were no climax readings today.
*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 UP and the condition is NEUTRAL.
Swenlin Trading Oscillators (STOs) have reversed higher in neutral territory. Participation is beginning to swell again.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is EXTREMELY OVERBOUGHT.
IT indicators have reversed higher again but remain extremely overbought. %PMO Xover BUY Signals has reversed higher.
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 BULLISH in all three timeframes.
Internal strength is working in the market's favor. We have all of our participation indicators reading above our bullish 50% threshold. The Silver Cross Index and the Golden Cross Index are both above their signal lines giving us a bullish bias in both the intermediate and long terms.
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: The overbought market continues to advance, and it suggests a scenario for the next four weeks or so. This is not necessarily a forecast, rather something we might be looking for. Similar to what we saw in 2021, the market could continue to advance until year end, and then a strong decline could begin in January. This idea could be torpedoed in a day or two, but for now it has a certain ring. What the Fed has to say on Wednesday will certainly influence the outcome.
Erin is 65% long, 2% short.
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BITCOIN
Bitcoin finally saw a significant end to the parabolic formation that has been in the making since the end of November. It appeared it would just consolidate and head higher, but no. Instead we saw a parabolic breakdown that has taken the indicators out of their bullish configuration. The RSI is still positive, but dropping like a rock on the decline. The PMO has topped and Stochastics dropped below 80. Indicators aren't completely bearish, but they are breaking down significantly. At this point, the 20-day EMA could still hold up as support, so we won't get too bearish yet.
INTEREST RATES
Yields were mixed today. Not much ground was made in either direction.
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
$TNX is attempting to breakout from the bullish falling wedge. This is certainly a credible area of support along the 200-day EMA and former highs. The PMO has flattened. We are looking for a small recovery.
BONDS (TLT)
IT Trend Model: BUY as of 11/28/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The 20-year yield was up, this pushed TLT lower. It formed a bullish hollow red candlestick. The RSI is positive and the PMO is technically rising still. We don't like that Stochastics dropped below 80. With yields looking a bit more bullish, we suspect that TLT will drop down to test the 20-day EMA before reversing higher again.
Overhead resistance was essentially met so a turnover here isn't unexpected.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 11/27/2023
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar broke from a declining trend channel, but still hasn't managed to move much higher. Based on the PMO Crossover BUY Signal, a positive RSI and Stochastics above 80, we expect this rally will eventually catch on.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold is in pullback mode as the Dollar puts downside pressure on it. While support has been reached at the 50-day EMA, we do expect to see price move lower. We have a PMO Crossover SELL Signal that is confirming the decline right now. We are looking for price to test the 200-day EMA.
We notice that discounts are beginning to expand again suggesting investors are getting more bearish on Gold. This likely will contribute to lower prices overall.
GOLD MINERS Golden and Silver Cross Indexes: With Gold on the ropes, we are likely to see a continued decline on GDX. Interestingly, participation is still showing a heartbeat with %Stocks indicators all reading above 50%. Still, given the topping PMO, we do expect that this decline will continue.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/7/2023
LT Trend Model: BUY as of 8/3/2023
USO Daily Chart: Crude is beginning to rebound. Indicators are ripening as the PMO is flattening and Stochastics have turned up. We were fooled the last time the PMO started rising so we don't want to get too bullish too soon. The chart is encouraging.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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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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