I try not to repeat the opening chart if I can help it, but I thought you might want to compare and contrast today's Silver Cross Index (SCI) chart with yesterday's. If you recall, the SCI had turned up on both the SPX and SP600. Well both of those turned down. Interestingly, the SP400 SCI turned up today. I wouldn't look at that as a positive because as I said, these indicators are extremely overbought. We might see them dilly dally around sideways, but ultimately they are overbought and there is nowhere to go but down. We know that overbought conditions persist when we have a strong bullish bias, but as you can see from history, this indicator doesn't tend to stay this overbought for long.
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
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: Today's candlestick hit the top and the bottom of the rising wedge. We saw above average volume today on the decline. The expectation of the rising wedge is a breakdown. I also note that we have a negative divergence on the OBV. The VIX closed beneath its moving average on the inverted scale. When the VIX is below its EMA, the market is prone to weakness and decline.
The PMO has turned down slightly. The RSI has dropped out of overbought territory which is good, but it is on the decline. A great comparison would be at the October top where the RSI remained in positive territory, but steadily declined as price declined.
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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.
A topping BPI and SCI are bearish. While the GCI continues to rise, it is highly overbought, reaching levels we haven't seen since 2018 near the January top. What followed was a quick and painful decline.
The negative divergences are there in the short and intermediate terms. The long term is safe from a negative divergence, but it is extraordinarily overbought, sitting at its highest reading for the past three years and rising! We've already been sustaining these overbought readings since mid-November. It won't last much longer.
Climactic Market Indicators: No climactic readings today. There were still New Highs logged today which is bullish given the decline.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
Both STOs are now in decline. The STO-V is dropping from overbought extremes. I pointed out the negative divergences already. This seemed inevitable when you looked at the readings on %Stocks with PMOs Rising. Yesterday I mentioned that the rally would have difficulty being sustained if only 50% of stocks had positive momentum. Well, one day of decline and now there are only 37% with rising momentum. That's not rally material.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
The ITVM continues to rise into extremely overbought territory. The STO-B has been more finicky, rising and falling throughout the past month which I believe is a testament to participation being fractured. There are fewer stocks on PMO BUY signals and while it says 57% are on PMO BUY signals, remember that only 37% percent of those PMOs are rising.
CONCLUSION: Yes, it is one day of decline and I'm far more bearish than yesterday. I don't think the bullish bias will be enough to prevent the downside resolution of the bearish rising wedge. Remember, only about a third of the SPX stocks have rising momentum. The indicators are thoroughly overbought and peppered with negative divergences. Today's more active selling in comparison to Monday will rankle investors and will likely be a tipping point that spurs them to sell more. I'm guilty, I'll be looking to pull some shares off the table this week to lock in some profit.
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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.
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: The Dollar is making a comeback. UUP managed to close the gap formed last week. The RSI is rising again but is still negative. The PMO hasn't halted its decline yet and overhead resistance isn't far away at the 20-EMA and the September low. I suspect this rally will fizzle out, note that volume is falling in a negative divergence to price.
IT Trend Model: NEUTRAL as of 10/14/2020
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: Gold pulled back hard today. The Dollar was down less than a tenth of a percent and Gold was down 1.94%. That tells me there were a lot of sellers out there. The rising discount rate is suggests this as well. The RSI had just entered positive territory and the PMO had just triggered a BUY signal. I don't think it's over for Gold. There is plenty of support available and if the market begins to weaken and pullback, Gold is likely going to see dollars flowing into it.
I decided to include the weekly chart below to point out the last few times discounts were this high for this long. It happens before rallies take off.
GOLD MINERS Golden and Silver Cross Indexes: Ah yes, the day after I state "I'm bullish", GDX dives lower. I was asked how Miners would react if the market became weak. My reply is that the overall market direction will either help or hurt Miners as they are companies and aren't specifically tied to Gold prices. Today this is demonstrated as the market was down less that 1% and Gold was down nearly 2%. Miners were hit with a double-whammy and reacted accordingly. I like them still given the PMO BUY signal and SCI crossover in oversold territory. The indicators aren't overbought. Gold prices will need to pick up as the Miners will likely struggle if the market struggles.
CRUDE OIL (USO)
IT Trend Model: BUY as of 10/20/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Carl did a bang up job discussing the Energy Sector and Oil in particular in his free article today so I'm just going to link to it here.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: Carl and I have been cautiously optimistic about Bonds and our patience may be getting ready to pay off. The PMO is beginning to turn up. The RSI is negative, but is currently rising. Overhead resistance is going to be tough to overcome. All three EMAs are converging together to form that resistance. Yields are currently in a rising trend and that will put downside pressure on Bonds, but this week they are declining and helping TLT's cause.
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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