Using the Swenlin Trading Oscillators (STOs) and the IT Breadth Momentum oscillator (ITBM) and IT Volume Momentum oscillator (ITVM), we can watch the changes in the market bias. When we see "green" that suggests a bullish bias and "red" suggests a bearish bias. The bias can help us temper our expectations of future price action. With a bullish bias, we shouldn't count on bearish outcomes. Currently the market bias is bullish. It is one of the reasons we decided to move from the bearish rising wedge to a more bullish rising trend channel. So should we be rejoicing and piling on positions? Caution is warranted due to overbought conditions.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
MAJOR MARKET INDEXES
For the week:
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.
For the Week:
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: We annotated a rising trend channel, and price has already vaulted it. The PMO did give us a brand new crossover BUY signal and we can see that the OBV will not have a negative divergence any longer as it has risen above its previous tops.
The RSI directly indicates that the market is overbought. Overbought conditions can persist in a bull market, but a pause or small decline would do wonders for the RSI.
SPY Weekly Chart: The market hit new all-time highs again this week. The bearish megaphone pattern is still there, but price is now defying it as it travels ever higher, getting more and more overbought. The weekly PMO is rising, but is very overbought.
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 is breaking from its declining trend after a positive cross above its signal line. The SCI has turned back up and has crossed above its signal line as well. All of these indicators are rising. The GCI is extremely overbought. The SCI is overbought, but does have some more headroom to move higher, as does the BPI which is mildly overbought.
There is a negative divergence in the short term, but that could be erased soon. The short term isn't as overbought as the intermediate and long terms.
Climax Analysis: We saw a pullback on New Highs, but they were still impressive. Total volume was about average on today's rally. Net A-D and Net A-D Volume were mostly neutral, hugging the zero line. The VIX is the important indicator on this chart. It is rising and above its EMA which implies internal strength. However, it is getting close to hitting the upper Bollinger Band on the inverted scale. That is when we look for the market to pause or pullback to alleviate overbought conditions.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs did turn over today on a rally to new all-time highs. We may've reached the inflection point already.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT. The market bias is BULLISH.
The ITBM and ITVM continue to rise and have now become somewhat overbought. In order to lose the negative divergences, we will want to see the next peak happen above the November top. %PMO BUY signals is rising nicely and is not overbought. It certainly suggests higher prices ahead in the intermediate term.
CONCLUSION: The bullish market bias has returned. Unfortunately, the RSI has moved into overbought territory and the VIX is making its way toward the upper Bollinger Band on the inverted scale. The market will need to take a break. The new rising trend established this week is very steep and will be difficult to maintain. Price broke out above the rising trend channel, extending prices even further. We've used the word "overbought" numerous times in this blog article. In a bull market, those conditions can be alleviated with sideways price movement as well as a decline. Next week we would look for that pause or consolidation as the STOs turned down today. Erin has been telling her Diamond subscribers that she will be using next week's likely decompression of overbought conditions as an opportunity to add to her portfolio.
NOTE: Options expiration is next week, so we should expect low volatility toward the end of the week.
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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.
Yields have been rising and that is putting downward pressure on Bonds.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The dollar finally broke out of its declining trend only to be held up by the 20-EMA. The PMO just triggered a new crossover BUY signal and the RSI is rising. There was a fake out rally in mid-December, but in that case price didn't break from the declining trend. This is the best UUP has looked in a long time.
We aren't seeing a support level on the one-year daily chart.
UUP Weekly Chart: The weekly chart does show that $24 is a realistic support level. The weekly PMO hasn't turned up just yet, but it is working on it.
IT Trend Model: BUY as of 1/4/2021
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: During Monday's DecisionPoint TV show Carl expressed concern that gold's breakout on that day might be another fakeout as we saw in November. Typical of gold's tendency to disappoint, it turned out that his concern was well placed. After a small follow through on Tuesday, gold proceeded to fall apart. The rising trend line was broken, ultimately fulfilling the bearish promise of the rising wedge pattern.
Based upon the September low the next level of support is about 1850; however, the line drawn across the November low at 1760 is a much clearer target.
GOLD Weekly Chart: The promising flag breakout has failed, and November's low of 1750 may be challenged.
GOLD MINERS Golden and Silver Cross Indexes: With Gold's failed breakout, it wasn't surprising to see Gold Miners take it on the chin. Price is still within the short-term rising trend channel and it did find support on the 200-EMA, but losing support at the May top is a concern and does suggest a breakdown out of this rising trend channel. Gold is looking very weak and that will put downside pressure on the Miners. There is likely more downside to come with the next level of support at the November low.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Oil continues to impress, but it has now become very overbought with the rest of the market. The PMO is on a BUY signal but is very overbought along with the RSI. USO needs a pause or pullback.
We do know that overbought conditions can persist when there is a bullish bias. Although the 50-EMA is below the 200-EMA, price does appear to be headed to the 200-EMA.
USO/$WTIC Weekly Chart: The weekly chart is bullish with similar resistance at the 43-week EMA. The PMO is strong and is NOT overbought. Oil looks like it will continue to rise despite overbought conditions.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Today the 50-EMA dropped below the 200-EMA, resulting in a new LT Trend Model SELL signal. Bonds dove lower this week as yields expanded. TLT is now very oversold. The PMO is moving swiftly lower.
This could be a support level, albeit not a strong one given it only resides on non-cardinal lows in March. Strong resistance is available at the February top.
TLT Weekly Chart: You can see that the support on the daily chart isn't really there on the weekly chart. This week's break isn't decisive (3%+ breakdown) and price is oversold. However, the weekly PMO is not oversold and neither is the weekly RSI suggesting we could see lower prices and a move to that $145 support level.
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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