There were two DP Scoreboard signal changes I wanted to go over before I start into the "meat" of the report. First, the NDX finally relinquished its grip on its PMO BUY signal. You'll see from the Scoreboards below that the other three Scoreboards indexes (SPX, OEX & Dow) have been on PMO SELL signals for 2 weeks.
Today's deep decline on the NDX caused the PMO to drop below its signal line. You can see a rising wedge on the NDX that has begun to resolve downward. As with the SPX, there is short-term support nearby, but this heavy shift in momentum to the downside suggests we are in pullback or possible correction mode.
The Dow has been sporting a Long-Term PMO SELL signal since the end of 2018. Right before the bear market of 2020, the LT PMO had nearly logged a new BUY signal. The broadening pattern on the Dow is similar to the SPY. These are bearish patterns and suggest a correction for the Dow. More than likely this signal has come to the table too late.
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 decline formed a very large bearish engulfing candle on the SPY. This candle is engulfing not only Thursday's candlestick, but all of last week's candles. The rising trendline that formed the bottom of the bearish rising wedge was breached today suggesting further decline. Like NDX, there is short-term support available at the November high. The PMO is continuing lower after topping below the signal line last week. The RSI is positive but is declining quickly. Price did manage to close above the 20-EMA. I would consider today's drop a climax. I'll elaborate later.
I notice that total volume today was above the 250-EMA, marking a climax. The negative OBV divergence continues.
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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.
While we don't have a negative divergence with the SCI, we do see that it has widened the margin with the signal line as it accelerates lower. The BPI is falling and continues to show a negative divergence with price tops. The GCI has paused. It hasn't actually topped yet. I think we can all agree that it is very overbought.
Many stocks lost support at their 20-EMAs today. Less than half of the components of the SPX now have price above their 20-EMAs. I suspect this will continue. This reading is far from oversold.
Climactic Market Indicators: As noted earlier, today was a climax. Now to decipher whether it is an initiation to lower prices or a selling exhaustion. Carl and I noted that New Highs expanded quite a bit today which didn't make much sense on a huge decline. However, we did make new all-time highs today before the disaster. This indicator measures when a stock hits a new high, it doesn't monitor if those stocks closed at new highs. So during the day, many stocks did hit new highs, but it is likely that they aren't sitting at new highs right now. The VIX dropped well below its lower Bollinger Band on the inverted scale. Many times when the VIX stretches like this it can mark an oversold low and upside reversal point. However, I would point to early September and late October VIX readings. The VIX stayed outside the lower Band for a few days after before finally marking a bottom. In September the rally that followed was quite anemic and ultimately it turned back down. I am voting for a selling initiation climax. I suspect we will see follow-through on this decline.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
The STOs had finally reached positive territory again and now they are declining again. When these indicators decline, we usually see the market follow with its own decline. We do have somewhat oversold readings on the %Stocks with PMOs rising, but we've seen lower numbers and I am looking for more stocks to lose positive momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL. The intermediate-term market bias is NEUTRAL.
These indicators are still above the zero line, but not for long if they continue to decline. These aren't oversold readings, but during strong bull market phases the zero line has marked oversold territory. The bullish bias is deteriorating so I would look for them to decline further with price.
CONCLUSION: Today we had a selling climax. I would consider it an initiation to lower prices. The bullish bias has been disintegrating leaving the market far more vulnerable to a pullback or correction versus a simple pause or consolidation. We could very well see a bounce tomorrow given the very high VIX, but I would not be looking for a new leg up given the bearish negative divergences, declining STOs and highly overbought conditions of the Silver Cross Index and Golden Cross Index. I've been paring back my exposure to the market for the past two weeks in anticipation of the rising wedge resolving downward. If you are still exposed, consider turning mental stops into hard stops.
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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 rallied today but couldn't break out of the bullish falling wedge. I've been very bearish on the Dollar, but I am seeing a positive divergence with the OBV and a brand new PMO crossover BUY signal today. The RSI is negative, so price is still internally weak which will make a breakout difficult.
IT Trend Model: NEUTRAL as of 10/14/2020
LT Trend Model: BUY as of 1/8/2019
GLD Daily Chart: Gold had a banner day, pushing price out of the bearish rising wedge. Typically a bullish conclusion to a bearish chart pattern is especially bullish. The RSI has now hit overbought territory (although we can see from July and August that these conditions can persist). Discounts spiked today on PHYS which suggests there is still bearish sentiment out there regarding Gold. The PMO looks great and this breakout took price above the 2011 top. Carl and I are cautiously bullish on Gold.
GOLD MINERS Golden and Silver Cross Indexes: Miners broke out above very important resistance. We had first witnessed price recapturing the 200-EMA, then the 20-EMA. After that, the 50-EMA loomed and it shared space with the May top and intermediate-term declining tops trendline. Today we saw the breakout I've been waiting for. The RSI is now positive and the PMO is accelerating upward and nearly in positive territory. The concern would be the highly overbought indicators. When I looked at this chart during today's DecisionPoint Show, they were not nearly as overbought as they are now. Yet, I note that when we get a nice rising trend, those overbought conditions can stick around for weeks before a breakdown. I would wait for the likely pullback after this big breakout before entering a gold mining position as we could be looking at a reverse island formation.
CRUDE OIL (USO)
IT Trend Model: BUY as of 10/20/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: We nearly saw a bearish engulfing candlestick on USO today. The PMO certainly suggests that price could continue to decline, but the RSI is currently positive and price didn't breach the 20-EMA. Support at the August top is strong. Carl mentioned the development of a possible Adam and Eve double-top during today's DecisionPoint Show. I'll be keeping an eye on that. For now, expect more sideways movement but with the risk of a drop to support at the August top.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: Price has now drilled nearly all the way through the symmetrical triangle. Price is being stymied by the 50-EMA. Despite a PMO BUY signal that came in last week, price is unable to breakout. The RSI is neutral. Given the trouble price continues to have with overhead resistance at the 50-EMA, I suspect we will see a breakdown before a breakout.
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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