A four-month rising trend finally broke down today. Numerous negative divergences have been giving us advance warning that a breakdown was probably on the way, and then this week price failed to reach the top of the trend channel before turning down. That rising wedge formation was a strong clue that the trend was about to break.
The breakdown doesn't mean that the bottom is falling out, but the daily PMO is overbought, and negative divergences persist, so further decline is indicated.
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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BROAD MARKET INDEXES
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.
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Top 10 . . .
. . . and bottom 10:
This chart is included so we can monitor rate inversions. In normal circumstances the longer money is borrowed the higher the interest rate that must be paid. When rates are inverted, the reverse is true.
IT Trend Model: BUY as of 5/8/2020
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: SPX Total Volume expanded on Thursday, but contracted on Friday, which may indicate that the pullback is done. The dominant feature now is the bearish rising wedge, and the overbought daily PMO has topped, possibly signalling a continued decline.
SPY Weekly Chart: We have to look at the thumbnail panel to see that SPY closed near the bottom of the weekly range. No guarantees, but that looks like a top.
Climactic Market Indicators: There was a breadth climax on Friday, but that's too inconclusive to draw any conclusions from.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL. The bias is bullish in this time frame.
Intermediate-Term Market Indicators: There are strong negative divergences on two of the indicators, and the BPI turned down.
The intermediate-term market trend is UP and the condition is somewhat OVERBOUGHT. The market bias is bullish, but the strong negative divergences call for a continuation of this week's decline. Note that all the indicators turned down this week.
FUNDAMENTALS: It is widely believed, and I concur, that the rally from the March lows has been fueled by excess liquidity provided by the Fed; although, the rally also began from a deeply oversold technical condition. But being oversold has not been an issue for weeks, so just how much, if any, excess liquidity remains. We know for sure that a storm of bad news is coming down the pipe, and so much of it is foreseeable that we have to wonder why the market seems unaffected. In my opinion it is because a bubble mentality has taken over, a condition that causes a disconnect from reality. Prices are going up, so everything must be okay. Bad news coming? Go away kid, you bother me.
CONCLUSION: AAPL is a key component of a lot of market/sector indexes, so it will pay to keep a close eye on it. The AAPL chart I published on Wednesday afternoon really emphasizes the vertical extreme of its advance since March. It has advanced at an angle which cannot be sustained. Of course, we can't know when a vertical advance will exhaust itself, but as luck would have it, AAPL broke down on Thursday, and the Technology Sector followed on Friday. Major breakdown? No way to know, but it's a start.
There are a substantial number of negative divergences on intermediate-term charts -- this week's price top is higher than June's price top, and this week's indicator tops are lower than their tops last month. Because if this, I think there is a strong probability that the decline will continue next week. My initial target is a total decline of about -7% -- about like last month. If that happens, we'll look at possibly lower targets.
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IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: We can see a bearish head and shoulders pattern buried in the rounded top formation. At any rate the dollar has broken down, and the daily PMO has topped below the zero line, an extra bearish event.
UUP Weekly Chart: There is plenty of congestion for price to find support, but nothing stands out other than the 2018 low. We'll need to wait and see.
IT Trend Model: BUY as of 3/24/2020
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: It was an excellent week for gold with a +4.83% advance. By Friday, price was slowing down, and it looks as if we'll see some consolidation or a technical pullback. Sentiment says that people are still skeptical, which is a positive for gold.
GOLD Weekly Chart: A logical next step is for gold to pull back toward the rising trend line, and the next chart shows why.
GOLD Monthly Chart: We're a week early with the monthly chart, but I needed to show how close gold is to challenging the all-time highs at 1923.70. Just 26.20 to go, which could be done on a good day.
GOLD MINERS Golden and Silver Cross Indexes: GDX appears to have made a short-term top, and a pullback to the rising trend line seems likely. The Miners are very overbought, but that condition can persist in a bull market.
CRUDE OIL ($WTIC)
Until further notice we will use $WTIC to track the oil market. Since this is a continuous contract dataset, it doesn't "play well" with our Trend Models, and we will not report Trend Model signals for oil.
$WTIC Daily Chart: That line of resistance at about 41.00 has held for nearly a month.
$WTIC Weekly Chart: There is a lot of congestion above the current price level.
IT Trend Model: BUY as of 6/26/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: TLT was stopped at the 170 level two days in a row. The March up spike demonstrates the potential for higher prices, but for now I think the advance is probably done.
TLT Weekly Chart: The weekly PMO is very overbought.
Technical Analysis is a windsock, not a crystal ball.
Happy Charting! - Carl
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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Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)