A key element in determining the potential for more decline is the Technology Sector. As of Friday, that sector has declined -12.5%, and some of the indicators are getting oversold. Significantly, price penetrated the rising trend line, but managed to recapture it by the close.
If you're talking technology, you're also talking Apple. AAPL has declined -21% since the recent all-time high. Today it successfully retested last Friday's low. So far, so good. There is gap support just below, and I wouldn't want to see that broken.
I can't rule out more selling in this sector next week, but for now, it looks pretty solid.
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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: The market hit an exhaustion low on Tuesday, then successfully tested that low twice more this week. There was quite a bit of selling on Friday, but volume contracted, indicating that selling pressure is abating.
SPY has dropped slightly below the support line drawn across the February top -- not a decisive move, and we can make a case for support at that slightly lower level.
SPY Weekly Chart: The trend line break and the weekly PMO being close to topping, makes for a rather bearish outlook in this time frame.
S&P 500 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 Bullish Percent Index (BPI) shows the percentage of SPX stocks on Point & Figure BUY signals.
The SCI is 20% below its June top, and the BPI is 35% below its June top, an obvious decline in intermediate-term participation. The GCI is 28% below January top, showing the longer-term deterioration in participation. The thing to remember is that these are equal-weighted indicators, and the cap-weighted S&P 500 can be held aloft by a small group of large-cap stocks. Eventually, that group can no longer do the job.
Climactic Market Indicators: Last week we had a perfect example of why we watch these climax monitors. The market gapped up to a new, all-time high with climaxes all over the place. Since it was at the top of a rising trend, we suspected that it was a blowoff top, and exhaustion climax, which proved to be the case when the following day there was a downside initiation climax. This week there were more climax readings, but it was more difficult to identify just which kind of climax they were. Nevertheless, this week there were three downside climaxes, and they are beginning to look like a series of downside exhaustion climaxes, since Tuesday's price low held for the rest of the week.
Short-Term Market Indicators: The short-term market trend is NEUTRAL, and the condition is OVERSOLD. The market bias in this time frame is NEUTRAL. The short-term outlook is bullish.
Intermediate-Term Market Indicators: The stocks above moving averages charts show a market that is somewhat oversold in the short term, but still far from being oversold in all time frames. Certainly more selling can be accommodated.
The intermediate-term market trend is UP and the condition is OVERSOLD relative to the indicators' ranges since May. The market bias is BULLISH. At some point the ITBM and ITVM are going to head for the bottom of the historical range, about -200, and that will definitely be bearish. The current negative divergences may be warning of a shift in that direction.
THIS & THAT: One of the popular trading platforms asserts that "stocks only go up," and retail investors seem to be stampeding into options trading. These are the kinds of things that show up around market tops.
CONCLUSION: On Tuesday the selloff that began last week continued, but the market seemed to find a bottom and offered hope that the pullback, now about -7%, is over. The trends of the ITBM and ITVM charts are just ugly, and show a steady deterioration of internals, and the downward slope on these indicators is worse than any time in the last three years. While it looks as if a short-term bottom has been reached for the Technology Sector and for the S&P 500 (same thing, really), I do not think that the correction is over. Maybe we get a small bounce or more pausing, then the decline continues -- just one of many possible outcomes that lead lower.
Note: Next week is a Quadruple Witching options expiration week. We should expect low volatility toward the end of the week, and very high volume on Friday.
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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: Erin reminded us that the down gap in July sets up a zone of resistance, but it occurs to me that the cluster of price bars below that gap are forming a rounded bottom, which could have a bullish resolution. I'll be looking for a "handle" somewhere above the gap. The cluster could also be viewed as a potential island reversal.
UUP Weekly Chart: UUP has potentially found support, and the weekly PMO is oversold and decelerating.
IT Trend Model: BUY as of 3/24/2020
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: The sharp advance from mid-July needed to be digested, and that process has materialized as a symmetrical triangle. It is also called a continuation pattern, because we should expect the rally to continue once the process is completed.
GOLD Weekly Chart: The weekly PMO is very overbought and topping, which implies that the digestion process may last longer than we might like. That might be a good thing because the rising trend from the 2018 low keeps accelerating, and could do with some moderation.
GOLD MINERS: I'm seeing consolidation here similar to what is happening with the metal.
CRUDE OIL (USO)
IT Trend Model: SELL as of 9/8/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: The line of support I have drawn at 24.00 is my best guess where USO may find support in the current decline. The four-day island hints at an upside reversal, but I'm not "feeling" that so much.
USO/$WTIC Weekly Chart: Obviously, USO and WTIC are heading for a retest of the April low. Since that was a panic low, I think it will find a bottom somewhat above that level. My guess is between 20 and 30 for WTIC, maybe 20 to 25 toe USO.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: Except for the June dip, TLT has been in a narrow trading range since late-March, and this causes EMAs to converge and the PMO to flatten and stay near the zero line. Until the Fed changes its stance, I don't see much happening here.
TLT Weekly Chart: Again, when price flattens, the PMO moves toward the zero line. No news here.
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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