I decided to open with our summary Silver Cross Index (SCI) chart that includes the indicator for large-, mid- and small-caps. Remember that this indicator measures the percentage of members in the index that have a 20-EMA > 50-EMA ("silver cross"). Notice that the SPX SCI has reversed back up. Interestingly, mid-caps have their SCI falling. The SP600 SCI is accelerating higher. In all three cases, these indicators are highly overbought. The good news is that we aren't seeing negative divergences, although when they're this overbought, it is always worrisome.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
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.
CLICK HERE for Carl's annotated Sector charts.
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: I adjusted the top of the rising wedge slightly. This is a bearish pattern so we are expecting it to resolve downward. Overall we didn't see much in the way of total volume. The VIX remains above its EMA on the inverted scale. Bollinger Bands are squeezing which tells us investors are still complacent as price volatility has slowed. Unfortunately, after a squeeze, an expansion generally means at least a pullback ahead.
The RSI is modestly overbought and the PMO is rising and moderately overbought. Both can accommodate more upside.
***Click here to register for this recurring free DecisionPoint Trading Room on Mondays at Noon ET!***
Did you miss the 12/7 trading room? Here is a link to the recording -- access code: fNN=Q8h9
For best results, copy and paste the access code to avoid typos.
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.
I discussed the SCI in the opening. I also note that the BPI is rising and moderately overbought which is positive. The GCI is reaching readings not seen since the market prepped for the bear market.
Readings are overbought and show negative divergences in the short and intermediate terms. Even though the long-term %Stocks > 200-EMA doesn't have a negative divergence, it has now reached its highest point this year.
Climactic Market Indicators: No climactic readings today. New Highs expanded, but not climactically.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STO-B has turned down on a rally day. There is an extremely overbought (yet rising) STO-V and both %Stocks indicators are showing negative divergences. It's hard to believe the market can keep moving higher when only half of the stocks in the SPX have rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
Both the ITBM and ITVM are rising. The ITVM is highly overbought and is nearing its highs for the year. The ITBM is rising and not quite as overbought, but of course it has a negative divergence.
CONCLUSION: The market continues higher despite highly overbought readings and negative divergences popping up everywhere. The market honestly needs a pullback or correction and given momentum is waning based on 59% having PMOs on a BUY signal and of those, only 50% having rising PMOs. The bullish bias is still very strong but that will not be able to counteract a lack of participation. We still aren't looking for a big correction this month based on seasonality, but a pullback is definitely on the table in the near term.
Have you subscribed the DecisionPoint Diamonds yet? DP does the work for you by providing handpicked stocks/ETFs from exclusive DP scans! Add it with a discount! Contact firstname.lastname@example.org for more information!
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.
Currently, we are in a "rising rate" environment and that is putting pressure on longer-term Bond prices.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: Yesterday's comments still apply:
"The Dollar has been in free fall, but it is taking a pause. Trading over past three days has formed an island. This could be a reversal pattern. The RSI is coming out of highly oversold territory and the PMO is beginning to decelerate. All of which point to a price reversal on the Dollar."
IT Trend Model: NEUTRAL as of 10/14/2020
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart:
Gold is showing follow-through on yesterday's breakout. Price traded and closed above the 50-EMA. The RSI is now positive and the PMO has generated a BUY signal. Discounts are still high and that is positive for Gold.
Read yesterday's comments below regarding a rising Dollar and its current effect on Gold:
"When the Dollar rises, Gold generally falls. If the Dollar does bottom as noted above, we would expect Gold to fail. However, I would point you to the Correlation in the last indicator window. Gold has been traveling mostly in the same direction as the Dollar. That is going away. What is left is a correlation that is moving toward zero. The closer the correlation is to zero, the less tied the two are. They are decoupling. Just because the Dollar could be reversing, that doesn't sound the death nell for Gold."
GOLD MINERS Golden and Silver Cross Indexes: Miners paused today but stayed above important support. The PMO has now given us a crossover BUY signal. The RSI isn't positive yet, but its close. The SCI has had a positive crossover. We are seeing improvement on %Stocks > 20/50/200-EMAs and they are not overbought yet. I'm bullish.
CRUDE OIL (USO)
IT Trend Model: BUY as of 10/20/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Yesterday's comments still apply:
"USO continues to struggle with overhead resistance at the summer highs. It has overcome that price level but hasn't done too much since. The PMO is rising and on a BUY signal and the RSI is positive and not overbought. I'm expecting USO to hold this new support level based on a review of $WTIC below USO's chart. Notice $WTIC has relatively new LT Trend Model "Golden Cross" BUY signal. USO won't see that for some time given the distance yet to be traveled to the 200-EMA. I still like Oil and Energy."
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: Yesterday's comments still apply:
"As noted in the comments on the yield array, rates are in a rising trend. This will make it difficult for TLT to overcome resistance at all of the EMAs. However, it is positive that price bounced when it reached the November low. The PMO is trying to turn up, but the RSI is still negative. This could be the second bottom of a double-bottom pattern, but it's too early to annotate it. We're cautiously optimistic on Bonds."
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.
Helpful DecisionPoint Links:
DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.