I'll address the negative divergences as we go along in the report today. One reason they weren't visible before today is that many of those indicators hadn't topped. Now they have and it isn't pretty.
Yesterday we saw a PMO BUY signal arrive on the SPY and today we now have both the NDX and OEX triggering the same signal. The Dow is still holding onto its PMO SELL signal for now, but it appears to be in jeopardy.
Let's look at the charts. The NDX has been in a rising trend channel, but over the past two days we've seen price breaking out from the top of the channel, accelerating the rising trend. The OBV is confirming the rally.
The chart of the OEX is very similar to the NDX. Today marked its first breakout from its rising trend channel. However, unlike the NDX, the OBV on the OEX has a strong negative divergence with price.
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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: I annotated a new rising trend channel yesterday in the short term. However, I note that price hasn't really left the longer-term rising trend channel. In fact, it is sitting right in the middle of the new short-term rising trend channel. The RSI is very positive and not quite overbought and we did just get a new PMO BUY signal yesterday. If price turns down here, it means that it couldn't really maintain the new rising trend channel. When we see a top that fails to reach the top of a channel, that is usually a sign that the channel won't hold up.
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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.
We don't have an official negative divergence on the BPI because we haven't seen another top. However, its direction is certainly in defiance of price. The SCI had formed a very short-term negative divergence (seen best in the thumbnail), but it is rising again and will likely nullify it. The GCI was flat today, but it looks like it could finally be topping.
Here's the first chart I noticed the strong negative divergences on. We don't see it in the long term, similar to the GCI above, but %Stocks > 200-EMA is very overbought.
Climactic Market Indicators: We finished the day positive, but breadth was undeniably negative. There were no climactic readings. The VIX is getting very close to the upper Bollinger Band on the inverted scale. I believe this indicator will be key in determining when we see a pullback. A reading of 20 or less would likely kick off a decline.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
The STOs have been in a negative divergence with price since they topped earlier this month. They continue to decline which tells me to be cautious in my trading despite the strong bullish bias.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT. The intermediate-term market bias is BULLISH.
These indicators are mixed and we only see a true negative divergence with the ITBM. It appears they are ready to top in near-term overbought territory.
CONCLUSION: The rising trend channel in the intermediate term is intact, but a market top now would suggest that the accelerated short-term rising trend is in jeopardy. My bullish outlook for the market is tempered by the new negative divergences. We already had very overbought readings on most of the indicators so seeing negative divergences as well makes me question whether this market can continue much higher. I currently am 85% exposed to the market as I've added positions over the past few weeks. I will go in and tighten a few stops for protection as I am preparing for an 8% to 10% pullback very soon.
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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: UUP is in a trading range. The RSI is negative and moving lower and the PMO has topped below the zero line. The Dollar will likely be under fire with new borrowing ahead from our government.
IT Trend Model: NEUTRAL as of 1/14/2021
LT Trend Model: BUY as of 1/8/2019
GLD Daily Chart: The PMO is now rising again and we have a nice short-term double-bottom on GLD. The RSI has now hit positive territory. I'd like to see it break above the 50-EMA before getting too bullish, but it's looking good for Gold right now.
Full disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: Miners gave back some of yesterday's gains. It has again failed to breakout from the longer-term declining trend and above the 50-EMA. The RSI turned down today in negative territory. While I expect a rally from Gold, I'm not convinced Miners are in breakout mode.
CRUDE OIL (USO)
IT Trend Model: BUY as of 10/20/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Yesterday's comments still apply:
"The rising trend continues for USO, but we do have a bearish rising wedge. The PMO has flattened on Monday's pullback. The RSI is now out of overbought territory and could support higher prices. The wedge bothers me. There is a strong possibility that price will need to test the 20-EMA and rising trend. Monday's pullback doesn't seem sufficient given how overbought the PMO is."
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: The cup and handle pattern has now matured. The pattern tells us to expect a rally, but I have to say the RSI turning down and the PMO unable to bottom has me questioning whether that will occur. It seems much more likely that we'll see a test of last week's low.
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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