One of the lesser known DecisionPoint indicators (that happens to be one of my favorites) is the 10-DMA of the High-Low Differential. It isn't particularly volatile, but its undulations can generally warn us of upcoming problems. Typically, when this indicator gets overbought and/or begins to turn lower, it marks tops (or bottoms when it turns higher). Right now this indicator is near-term overbought and rising. We've certainly seen higher readings before the bear market, but right now it is at its highest level since the bear market recovery. I'm expecting more decline, but this may hint that the rising trend could be in jeopardy.
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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: Price is making its way slowly down to the bottom of the rising trend channel. The High-Low Differential in the opening chart may be warning us that the rising bottoms trendline won't hold. For now, the PMO is still technically rising even though it has decelerated quite a bit in the thumbnail. The RSI remains positive and the OBV no longer has a negative divergence with price as it did in December.
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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 BPI has topped today after breaking its declining trend. It is highly sensitive, so we could still see some twitchy moves. If it falls back into its declining trend, the negative divergence it is cobbling together will remain.
Not much movement on these indicators today. Overall, the intermediate-term and long-term readings remain flat. The Stocks > 20-EMA is falling, but that's expected. It is somewhat overbought and still sporting a negative divergence with price.
Climactic Market Indicators: New Highs popped again telling us there is strength out there. There weren't any climactic readings today, but I do note that total volume was above average. Additionally, the VIX remains within its Bollinger Bands and above its EMA. I'm waiting for the VIX to surge lower on the inverted scale. Penetrations of the lower band generally happen at market bottoms.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs were basically unchanged today and remain overbought. As I've noted previously, they could certainly move higher should the market decide to move higher. I like seeing the more momentum building out there with 59% of stocks having rising PMOs.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL. The intermediate-term market bias is BULLISH.
The ITBM/ITVM are beginning to reach near-term overbought territory. They still have room to run and are rising so they are looking very bullish right now.
CONCLUSION: Overall the market is acting as expected with a gentle decline to the bottom of the rising trend channel. The PMO is still rising, although it is acting very toppy. The STOs are flat and not falling so I'm not looking for a big pullback or decline yet. The intermediate term is looking more healthy as the ITBM/ITVM continue rising and we see just enough momentum within the market (59%) to hold up this rising trend channel. Still... I will repeat the end of yesterday's conclusion:
"I received an email from John Mauldin on his "Over My Shoulder" newsletter. The "key points" he listed from the article he had attached by Jeremy Grantham included this one:"
"Great bull markets typically turn down when market conditions are still favorable, but subtly less favorable than they had been."
The rising trend channel is great and the fact the PMO hasn't turned down yet on this decline back into the rising trend channel is bullish. However, I am keeping that quote above in mind.
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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 pulled back today which tugged the RSI back down into negative territory. Price finished below the 20-EMA. The PMO is still rising, but this close below the 20-EMA suggests this breakout rally could already be over.
IT Trend Model: BUY as of 1/4/2021
LT Trend Model: BUY as of 1/8/2019
GLD Daily Chart: Gold was lower on the day despite the Dollar losing value. This tells us there are plenty of sellers out there, the rising discount rate confirms this. The RSI is negative and the PMO is on a new crossover SELL signal. While this bounce off the 200-EMA is encouraging, the 20-EMA is about to cross below the 50-EMA which will give us an Intermediate-Term Trend Model Neutral signal. "Neutral" meaning not buying nor shorting. I don't see this as a buy point. The 50-day correlation to the Dollar is at zero, meaning they aren't tied to each right now in the intermediate term.
Full disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: Miners managed to stay within the short-term rising trend channel. It closed above the 200-EMA and the RSI has turned up. The PMO is still in decline. I'd have more faith in this rising trend holding up if I saw more strength under the surface. Less than 7% have price sitting above their 20-EMAs and the Silver Cross Index tells us that less than 42% have their 20-EMAs > 50-EMAs. When all the indicators turn up, I'll reconsider my bearish stance.
CRUDE OIL (USO)
IT Trend Model: BUY as of 10/20/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: The RSI is very overbought, but Oil and the Energy sector are still rolling. The PMO is rising and the OBV is confirming this rally. So far this steep rising trend is holding up.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Bonds are struggling to hold support at the June low and the March lows that I annotated. The RSI is very oversold and suggests a turn for Bonds. Yields have been rising quickly and it appears they are ready to calm and turn over. The PMO is decelerating so it appears TLT will hold this level and rise again.
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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