Today we had more climactic readings on our very short-term indicators. Friday's was clearly a buying initiation as prices popped today and new all-time high was logged. Who is supporting this rally as far as the sectors? Below I have the Sector RRG chart. Julius de Kempenaer, the creator of RRG charts will be joining me in the free DecisionPoint Trading Room on Monday, November 30th at Noon ET. The registration link is here. I love using RRG to look at sector rotation. Note that the setting on the dropdown is "Daily". The default is "Weekly". The daily version gives us short-term sector rotation which is why I have used it below. XLE has been rocketing higher as interest has finally been piqued and investors are pouring in. The other two sectors are the Financials (XLF) and Industrials (XLI). I can tell you that I have been seeing a large grouping of Financial charts in my Diamond Scans. Industrials continue to outperform and have had a prominent position in the same scans. Materials and Healthcare are beginning to fade, just as Technology and Real Estate begin making a turn toward the green "Leading" quadrant. At this point, the rally has been fueled by Energy, Industrials and Financials. The aggressive Technology sector has not been leading this rally; likewise, the defensive XLP and XLU have taken a back seat. If XLK can get moving again, this rally could extend further. If we begin to see the defensive sectors outperform, then likely there is trouble ahead.
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MAJOR 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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THE MARKET (S&P 500)
IT Trend Model: BUY as of 5/8/2020
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: Another closing all-time high for the SPY on a gap up. We note that the all-time intraday high wasn't challenged today. There was a pop in total volume for the day which we consider climactic. The VIX currently is oscillating above its 20-EMA on the inverted scale and that suggests internal strength.
The RSI is positive but is headed for overbought territory. While it can remain overbought for many days, it's important to be aware of overbought price conditions when they begin to appear.
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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 BPI has bottomed above its signal line which is very bullish. We can see both the SCI and GCI have increased their acceleration upward.
I decided to include the thumbnail on this one. Notice that despite new all-time highs, we didn't see much expansion in participation. These indicators are overbought, but haven't reached extremes.
Climactic Market Indicators: More positive climactic readings today. We did see an expansion of New Highs, but a small contraction of Net Advances-Declines. Given the pop in volume and only a second day of rising prices, I am leaning toward a continuation of the buying initiation climax from Friday. One reason I am biased toward an initiation to higher prices is the climactic reading that we saw again on the Up/Down Volume Ratio chart that follows. Carl wrote an excellent article last week that explains climaxes on this chart. Here is a link.
NYSE up/down and down/up volume ratios can be also be used as climax detectors. We use the 9:1 ratio suggested by the late Dr. Martin Zweig in his book, Winning on Wall Street. These climaxes happen less frequently than those on the chart above, and they can be used to clarify a particular event.
We saw elevated readings on the NYA UP/DOWN Volume Ratio, but climactic readings are defined as being a reading of +9 or above.
We do have a climactic positive reading on the UP/DOWN Volume Ratio for the SPX. Friday's confirmed the buying initiation and I believe this one confirms the continuation of that buying initiation.
Short-Term Market Indicators: The short-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT.
This is another reason why I believe we are looking at a continuation of Friday's buying initiation. The STOs are rising and aren't particularly overbought. %Stocks indicators are overbought and trying to tip over, but are still ultimately rising.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
These indicators dipped down on last week's pullback, but are rising again. They are overbought, but I am expecting to see them move even higher to compete with the last top.
CONCLUSION: The buying initiation that began on Friday appears to be continuing as we saw similar very high climactic readings today. A buying initiation means higher prices. STOs are rising, the PMO is rising and the RSI is positive and not quite overbought. The intermediate term is also quite bullish. We are certainly vulnerable for a reversal, but at this time the indicators suggest this rally will continue.
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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.
Bond markets were closed today so there are no changes to the yield chart.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: While reviewing the "Big Four" charts, I noticed that three of the four have established trading ranges. UUP is one of them. At this point price is moving down to test support at the bottom of that channel. A higher low than the previous November low would bode well and could imply a breakout the next time it moves up, but I don't want to get ahead of myself, especially given the very negative indicators. More downside is likely ahead, the question that remains is where will it bottom.
IT Trend Model: BUY as of 10/21/2020
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: Gold is in a holding pattern or more specifically a trading range (marked in green). I'm not giving up on the bullish falling wedge. Price is working on breaking out of it again. The PMO is bottoming again and the RSI has nearly hit positive territory above net neutral (50). Tomorrow's price action will be telling; will price breakout of the wedge or be turned away? The indicators are neutral so I will reserve judgment until tomorrow when price makes its move.
GOLD MINERS Golden and Silver Cross Indexes: We have a similar look for Gold Miners (GDX). Price has been in a sideways trading range and continues to struggle to overcome EMA overhead resistance. We see indicators are topping. Carl and I discussed that the November low was slightly higher than the October low and that could be an indication that a breakout will arrive soon. It will need more participation from its members given so few have price above their 20/50-EMAs.
CRUDE OIL (USO)
IT Trend Model: SELL as of 9/8/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: While I didn't highlight it in green, it is clear that Oil has been in a price, albeit a very wide one. USO's price broke out last week from the declining trend and cleared the 20/50-EMAs. Today, the PMO finally reached positive territory. The RSI turned up at net neutral (50), staying in positive territory. I would look for price to test overhead resistance at $31.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: Yields continue to rise and that has put pressure on Bonds. Price failed to get above the 20-EMA yet again and it is struggling to hold the 200-EMA as support. The PMO is trying to trigger a BUY signal, but the RSI remains in negative territory. I suspect we will see a test of support at $152.50 before we breakout above the 50-EMA.
Full Disclosure: I own TLT.
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.
Helpful DecisionPoint Links:
DecisionPoint Alert Chart List
DecisionPoint Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)