A blow-off is the final push to the upside before a strong decline. We similarly talk about exhaustion climaxes in the very short term that signal the last gasp of a market rally. The indicators are displaying the characteristics of a blow off or exhaustion. There's one problem. Santa Claus. December has a seasonal tendency toward higher prices, particularly right around Christmas and into the new year. Consequently this phenomenon is often called the "Santa Claus Rally". We've had a strong bullish bias in this market for some time so attributing it all to Santa would be unfair, but certainly he could extend the current rising trend.
On the 10-minute candlestick chart we see that the market was in a solid rising trend channel this week. Price closed at a new all-time high and poked out of the top of the channel on high volume. In the very short term, the RSI is getting overbought, but the PMO is going in for a BUY signal.
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
THIS WEEK'S RESULTS:
S&P 500 SECTORS
THIS WEEK'S 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.
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: The 5-month candlestick chart shows a bearish rising wedge. As noted above, price popped out above that wedge, and if it continues higher, could reshape this into a rising trend channel. The indicators are still positive except the RSI which is getting overbought. The VIX is staying above its EMA on the inverted scale which is short-term bullish.
Total volume today was average. Price has now rallied 70%+ since the bear market low.
SPY Weekly Chart: We have a bearish broadening top formation on the weekly chart. This week there was an upside breakout. The weekly PMO is very overbought, like most of our indicators.
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.
This week the SCI turned over and it is about to cross over its signal line in overbought territory. The BPI is mostly neutral and flat. The GCI is overbought and continues to rise. There is headroom to accommodate higher prices, but we are on thin ice given how overbought it is.
Yesterday we looked at the extremely overbought conditions of these indicators. There are also negative divergences in the short and intermediate terms. Although there isn't a negative divergence in the long-term timeframe, it is extremely overbought, hitting levels we haven't seen even in the past three years.
Climactic Market Indicators: We have a climactic reading on Net A-D. Readings are elevated on Net A-D Volume. We're not reading this as either an exhaustion or initiation climax. Total volume isn't confirming this as a climax and New Highs didn't spike either.
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 have an NYSE and S&P 500 version of the ratios, and normally they will only be published when there is a climax ratio.
Neither of the Volume Ratio charts are confirming this as a climax.
The S&P 500 version can get different results than the NYSE version because: (a) there are only 500 stocks versus a few thousand; and (b) those 500 stocks are all large-cap stocks that tend to move with more uniformity.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
It is positive seeing the STOs strongly moving higher today. There is improvement on %Stocks PMOs Rising, but the negative divergence is still firmly in place.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is EXTREMELY OVERBOUGHT. The market bias is VERY BULLISH.
While there isn't a negative divergence on the ITVM, it is very overbought. %PMO Crossovers did tick upward today, but it's still another negative divergence that weighs in the intermediate term.
CONCLUSION: The rising STOs, bullish bias and overall positive readings on the climactic indicators suggest either higher prices next week or at worst consolidation and a small decline. The bullish bias is strong enough that we aren't looking for a correction...yet. Santa may've arrived early. However, don't get too comfortable, the negative divergences and highly overbought conditions put us on thin ice. We know that overbought conditions can be sustained in a bull market or a market with a bullish bias. However, it can't go on forever and the negative divergences alongside highly overbought conditions have us listening for any cracks in the ice. We're not hearing them yet, but our ear is to the ground so we can alert our subscribers when we do.
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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: The Dollar spent the week in decline but paused today. This could be a reverse island. Conditions are very oversold and UUP saw a surge in volume today. As long as the PMO is pointed down and below zero, we won't be looking for a strong reversal.
UUP Weekly Chart: The seriousness of this breakdown is clear on the weekly chart. Important support was broken and the weekly PMO looks even worse than the daily PMO. The next level of support is at $24.
IT Trend Model: NEUTRAL as of 10/14/2020
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: Last week gold broke down through the support at 1850, and this week it rallied back to that line, which is now resistance. The daily PMO has turned up because of this bounce, but the price structure doesn't look enticing just yet. A move to retest the recent low would do a lot to improve the picture.
GOLD Weekly Chart: We were looking at a falling wedge in this time frame, but it has turned into a flag. In any case the chart is still bullish. Additionally we note high discounts and that is bullish for the metal.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are suffering the same fate as Gold. After rebounding, price hit overhead resistance at the October low and both the 20- and 200-EMAs. Momentum is rising and the SCI just had a positive crossover. We were seeing improvement on the other indicators, but during this end of week decline, most turned lower. If Gold manages its breakout, no doubt the Miners will follow with their own.
CRUDE OIL (USO)
IT Trend Model: BUY as of 10/20/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: USO broke out last week and then fell back below support. Today it traded above resistance. The PMO is rising and the RSI is positive and not overbought. The rally should continue in Oil.
USO/$WTIC Weekly Chart: $WTIC broke out sooner than USO and maintained its position above support which gave us confidence that USO would follow suit. The weekly PMO is rising and price is firmly above the 17-week EMA.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: TLT has hit important support, but the likelihood that it will hold this area of support is doubtful given the new PMO SELL signal below the zero line and a negative RSI that is declining and is not oversold.
TLT Weekly Chart: The weekly chart is unappealing with the PMO accelerating downward. Yields are in a rising trend and that puts downside pressure on Bonds. Support will likely be tested soon at the June low.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & Erin Swenlin
Our job is not to see the future, it is to see the present very clearly.
-- Jawad Mian, stray-reflections.com
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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