Until today, the Energy Sector (XLE) had been on a Long-Term Trend Model SELL since January 17th, 2020...however, that 1/17/2020 LT Trend Model BUY signal lasted two days before flipping back to a SELL. The last time XLE held onto a LT Trend Model BUY signal was all the way back in 2017. The difference between the whipsaw BUY in January 2020 and the new BUY signal that arrived today, is that price has established itself above the 200-EMA and has even bounced on two retests of it. Below is a long-term daily chart isolating the 50/200-EMAs.
The question is whether this LT Trend Model BUY signal will last more than 2 days. The one-year daily chart is below with our indicators. The big problem for XLE is that the indicators are very overbought. On the bright side, this does tell us that the majority of members of XLE are bullish and can support more rally. I would point you to those same indicators in November/December where they remained extremely overbought for about one month. Today's close above the December top is suggesting more upside. Overhead resistance will arrive at about $45 at the June top.
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.
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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: Price is making its way back into the rising trend channel after a brief foray above on Friday. Today's candlestick has a long wick and looks similar to a bearish "shooting star". Those are typically bearish reversal patterns, but it could be a sign that prices will continue lower tomorrow. Total volume did contract on today's decline which could be considered somewhat bullish. The negative divergence on the OBV has been nullified now that we have rising tops. The RSI has moved back out of overbought territory.
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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.
All three indicators are continuing to rise. The GCI is extremely overbought and the SCI is about to hit extremes as well. What impresses me most is the BPI which has abandoned its declining trend.
More overbought readings, not extremes. Note that since mid-November, most of these indicators stayed overbought. Today's decline didn't damage these indicators. The intermediate and long term indicators are moving sideways. When they begin to move below 70 or 75, that will likely be an early indication that the rising trend will be over.
Climactic Market Indicators: New Highs are pulling back, but they are still healthy considering the market declined today. The VIX has moved back below its EMA on the inverted scale and that would suggest more downside. However, when we do see it penetrate the lower Bollinger Band, that would be the time to look for an upside reversal.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
We lost some participation, but we still have over 50% of the SPX with rising momentum and the STOs did rise today. The STOs are currently overbought, but not extremely so.
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 tell us that the bullish bias in the market is back. We have %PMO crossover BUY signals rising nicely and not overbought.
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."
I think we need to keep this mind as prices pull back to test the current short-term rising trend. The PMO is still on a BUY signal which is bullish... but it is flattening on today's decline. So while that condition is favorable, it is deteriorating. Look for prices to continue lower and test the bottom of the rising trend channel. This will relieve overbought readings on some of our indicators in preparation for another leg up. A surge in the VIX will likely signal the end of any decline.
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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 is making a comeback so you likely know what is happening in Gold. Today gap up move does look like an initiation to higher prices. The PMO is on a BUY signal and rising and the RSI is now in positive territory. There is a bearish bias on the chart given the 50-EMA is so far below the 200-EMA, so I would expect to see UUP struggle when it hits the 50-EMA.
IT Trend Model: BUY as of 1/4/2021
LT Trend Model: BUY as of 1/8/2019
GLD Daily Chart: Gold successfully tested the 200-EMA and did manage to close just slightly above resistance at $1850. Given the rally in the Dollar and the very negative PMO, I would expect to see at best some consolidation above the 200-EMA; and, at worst, I would look for an unsuccessful test of support at $1750. The high discounts tell us that sentiment is bearish on Gold which is generally bullish. Unfortunately, right now it is confirming the decline.
Full disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: Trouble for Gold will generally translate into trouble for the Gold Miners. Currently they are testing the bottom of a short-term rising trend channel and the 200-EMA. The PMO has topped and the RSI is now negative. While indicators have entered oversold territory, they can certainly see take more damage. Given the bearish outlook for Gold, this short-term rising trend channel will likely breakdown this week. Next area of support is around $32.50.
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 saw a slight pullback on USO today. The RSI is overbought, as is the PMO. USO is due for a decline, but momentum is still very positive. The current rising trend is steep and will be difficult to maintain. Like the market, I suspect we will get some more decline to move the RSI out of overbought territory, but overall, the OBV is confirming the current rally and momentum is rising.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Bonds triggered a Long-Term Trend Model SELL signal last Friday. Today the decline continued but support was held. Yields have been rising quickly and it has taken its toll on Bonds. This could be the reversal point, but the PMO isn't decelerating much and suggests $150 support won't hold.
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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