I was asked by a reader about intermediate-term double-top pattern on the SPY. He wanted to know how it would complete or would be confirmed or would be invalid. Here is the short version. A chart pattern is not a chart pattern until it is confirmed. In the case of a double-top, price will need to drop below the confirmation line-- in this case, the September low confirm the pattern. A drop of 3%+ below the confirmation line, would make it a "decisive" resolution. If we don't get the "decisive" breakdown below the confirmation line, the pattern may not resolve as expected. Wait a minute! I keep calling it a double-top. We can certainly talk about formations that are lining up as a pattern. So clearly this week's rally is taking it away from the confirmation line, so is it a double-top? I have a rule of thumb (not textbook). If the declining tops line drawn from the second top is broken, I scuttle the pattern. At this point, it is nearing disintegration.
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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MAJOR MARKET INDEXES
One Week Results:
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.
One Week Results:
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: Price pierced both the 20/50-EMAs but closed a bit lower than both. The PMO hit negative territory, but it is now in negative territory. Volume was far from elevated today. The VIX is rising on the inverted scale but is still below its EMA.
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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 is rising out of near-term oversold territory. The SCI is rising, but it just ticked higher.
These indicators show that strength is growing under the surface in the shorter term but is nearing overbought territory in the longer term as %Stocks > 200-EMA reach toward recent tops.
Climactic Market Indicators: More climactic readings to the upside. We also saw a strong increase in New Highs. This is the 2nd day of rally so it could be considered an exhaustion. On the other hand without the pop in total volume, I hesitate to call it an initiation to higher prices. At this point, I would look at it as a continuation of the initiation climax that began yesterday. I would look for another up day since readings are expanding not contracting.
Short-Term Market Indicators: We had a large contraction on the STO readings. Additionally we have indicators rising strongly and are not overbought.
Intermediate-Term Market Indicators: Both of these indicators have turned back up and the ITVM is now back in positive territory. We are seeing %Crossover BUY signals rising now out of oversold territory.
CONCLUSION: The intermediate-term double-top formation is looking less ominous on this week's rally, but until I see a breakout from the short-term declining trend off the October top, I'll keep it on the chart. It appears a large trading range is developing and we have just rallied off the bottom of the range. Indicators suggest to me higher prices coming as the double-top pattern beginning to disintegrate. It will be interesting to see how the market reacts to election night certainty or uncertainty.
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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.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: Speaking of trading ranges... the PMO is struggling to get to positive territory and the RSI is back in neutral which tells me we will likely be looking at more movement between $25.50 and $24.75. There is an outside possibility that we are looking at a double-bottom coming together in the intermediate term but today's drop has me questioning that pattern already.
IT Trend Model: NEUTRAL as of 10/14/2020
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: Gold rallied but again was unable to get above overhead resistance at the 20/50-EMAs, 2011 top and more recently, the top of the falling wedge. The expectation is a breakout. We have an RSI that is back in positive territory and the PMO has turned back up. Increased discounts on PHYS is positive for Gold.
Full disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: I like what is going on in the Gold Miners industry group. The 'under the hood' indicators show improvement. Many are rising out of oversold territory. The RSI just moved into positive territory and the PMO is rising toward a crossover BUY signal.
CRUDE OIL (USO)
IT Trend Model: SELL as of 9/8/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Oil continued to rally today which has put price back above resistance at the September low. Now it must contend with the EMAs. The RSI is rising and the PMO is turning up as well. I expect to see Oil continue to move sideways in this large trading range between $31 and $24.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: The 200-EMA is barely holding on as support. The RSI is negative and the PMO is flat. The EMAs are squeezing price. Given the PMO is below zero and the RSI is below net neutral (50), I am expecting a breakdown.
Full Disclosure: I own TLT.
Technical Analysis is a windsock, not a crystal ball.
Happy Charting! - Erin
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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