We normally look at a longer-term view of the %Stocks Above 20/50/200-EMAs, but I wanted to focus in on current conditions. Each indicator window is a different timeframe for us to analyze. All of these indicators are overbought in every timeframe. I pointed out negative divergences in the short term yesterday. Today I want to point out that there is another negative divergence in the intermediate term. The long term doesn't have a negative divergence, but it is the most overbought of the three.
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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: The rising wedge is really starting to reveal itself. These are bearish chart patterns. The PMO is still rising and support is still holding at the November top. Total volume was average.
As I noted yesterday, the Bollinger Bands are beginning to squeeze the VIX which tells us that we have had very low volatility and market participants are mostly complacent and comfortable in this market environment. The RSI is positive and not yet overbought.
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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 SCI turned over today in overbought territory and is preparing to cross below its signal line which is bearish in the intermediate term. The BPI is holding above its EMA, but hasn't gained any ground this week. The GCI is still rising but is getting overbought.
This chart is a reminder of what these indicators do before a decline and that is they begin to move lower and out of overbought territory. We have to be nimble.
Climactic Market Indicators: No climactic readings today, but we do see short-term negative divergences on breadth.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL to SOMEWHAT OVERBOUGHT.
The STOs aren't that overbought right now but they have negative divergences, as do the %Stocks indicators.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
The ITBM and ITVM are traveling in different directions with the volume indicator rising and maintaining its overbought height, while the breadth indicator is clearly in decline. I'm not sure what to make of this, except to say that the last time they diverged, it was just before the January top. The %Stocks with PMOs Rising is tumbling and has made a negative cross over its signal line. Additionally it has an ugly negative divergence.
CONCLUSION: Overbought conditions can persist in a bull market environment, so this isn't necessarily the death nell for the market, but it is a clear warning that the ice is getting thin and could break beneath us. While we could still see higher prices as the PMO and RSI suggest, the negative divergences are a real problem. Seeing indicators dropping out of overbought territory and setting up negative divergences along the way is very bearish. Stay alert and listen for cracks in the ice.
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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: Yesterday's comments still apply:
"UUP continues to break down. It has dropped and closed below the March low. The RSI is oversold, but the PMO is firmly in a decline so expect more follow-through on this decline."
IT Trend Model: NEUTRAL as of 10/14/2020
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: Gold is continuing to rebound and has now reestablished itself above the 200-EMA. The PMO has turned up and the RSI is headed back to positive territory. The discounts on PHYS continue to be very high, meaning that investors are very bearish on Gold. Sentiment being contrarian, that is bullish for Gold. Right now Gold is struggling to overcome strong overhead resistance formed by the September low and the 20-EMA. I would like to see a PMO that was moving more enthusiastically to the upside, but it is rising and the RSI is rising as well. Gold appears ready to rebound and with the Dollar continuing to fall hard, Gold should see some wind at its back.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are pretty much in the same boat as Gold. They are struggling to overcome resistance. In this case, it is the October low, 20-EMA AND 200-EMA. The indicators are improving somewhat and the PMO is still rising. Gold Mining stocks continue to flood my scans so I would expect this area of overhead resistance to be overcome.
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:
"We are starting to see USO struggle against overhead resistance. This doesn't worry me too much as the PMO is still rising and the RSI is in positive territory. Another reason it doesn't worry me is that $WTIC has already made the breakout and is maintaining above new support."
I also note that $WTIC just triggered a Long-Term Trend Model BUY signal as the 50-EMA has just crossed above the 200-EMA. You can't see the 200-EMA on USO. That is not because I forgot to include it, it is because it is so far above price, it isn't showing! I am looking for higher prices to continue.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: TLT continues to avoid a negative PMO crossover SELL signal. The RSI is beginning to rise again, but the declining trend is still very much intact and now there is overhead resistance to contend with at the 200-EMA. If it does manage to bounce here without a trip down to the bottom of the channel that would suggest a breakout to come.
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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