I believe it is time to revisit the Rydex Ratio sentiment chart. A few followers have noticed how overbought it has become. Last night after the latest asset counts were in, the Ratio finished with the lowest reading recorded at 0.09. We invert the scale to arrange overbought readings on the top. A very low reading means participants are VERY bullish. Euphorically bullish investors lead to downside reversals.
On the chart below we've annotated cardinal price tops. You'll note that a these tops, the Rydex Ratio was always overbought.
The long-term chart shows you that, indeed, these are the lowest readings we've ever recorded for the Rydex Ratio.
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
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: The PMO triggered a crossover SELL signal today, along with the Dow ($INDU). Today's candlestick is somewhat hammer shaped which is bullish. Additionally, price held up at the 20-EMA. However, the PMO SELL signal is a big problem and leaves us less than bullish right now.
The RSI is still positive and the rising trend remains intact.
SPY Weekly Chart: Price has now extended above the bearish megaphone pattern. The weekly PMO has halted its advance on this week's decline.
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 SCI and BPI both had negative crossovers this week, with the BPI's arriving today. The GCI is very overbought and has tipped sideways, possibly in preparation for a top.
This week's decline shed the overbought conditions on the %Stocks > 20/50-EMAs. The %Stocks > 200-EMA rose this week, reaching further into overbought extremes.
Climax Analysis: While we didn't see any climaxes this week, today we saw a more negative breadth, including a large pullback on New Highs. The VIX is declining on the inverted scale and is nearing the lower Bollinger Band. If we see a surge in the VIX, that would signal a near-term bottom. We aren't there yet.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL.
The short-term bullish bias has disintegrated. The STOs continue to decline and that suggests more downside next week. Now less than half of the SPX have rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
The ITBM/ITVM topped today in near-term overbought territory. %PMO Crossover BUY signals tipped over this week and continues lower.
CONCLUSION: The market is arriving at a decision point. It's holding the 20-EMA and is still above the rising bottoms trendline, but indicators under the surface like the PMO and STOs suggest this won't hold. In the very short-term, the VIX is declining and isn't yet oversold on the inverted scale. When we see the VIX stretch out below the lower Bollinger Band (likely after a difficult decline early next week), we should see a reversal. It likely won't last given the falling STOs, PMO SELL signal and topping ITBM/ITVM.
NOTE: Monday is the Martin Luther King holiday and the U.S. markets will be closed.
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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 made some headway this week with the opening rally on Monday. The RSI is now positive and the PMO is rising on a BUY signal suggesting a continuation next week.
You can see a reverse head and shoulders that has finished forming. Next week we will look for it to execute with a rally above the neckline.
UUP Weekly Chart: The weekly PMO is very oversold and looking to turn up, which gives a strong indication that the large falling wedge is likely to resolve to the upside soon.
IT Trend Model: NEUTRAL as of 1/14/2021
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: With the dollar beginning what could be an extended rally, and seeing a reverse flag breakdown on GLD, it is difficult to maintain any enthusiasm for gold.
The 200EMA is currently providing support, and there is strong support at about 1760, but we expect continued weakness for several weeks. This outlook could turn on a dime, but things do look bearish at the moment.
GOLD Weekly Chart: As a point of reference the bear market low has moved off the left side of this chart. The dominant feature now is the current correction from the parabolic advance. The weekly PMO shows no inclination to bottom, but at least it is moving down from very overbought levels.
GOLD MINERS Golden and Silver Cross Indexes: As expected, GDX lost its short-term rising trend. The PMO triggered a crossover SELL signal and the RSI is negative and not oversold. The %Stocks > 20/50-EMAs are extremely oversold. The next level of support is at the November low, but given the bearish outlook for Gold, bullish outlook for the Dollar, a weak market and negative indicators, we will likely see a test of the $31 level around the February top.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Today's decline cleared overbought conditions on the RSI, but it also tugged the PMO downward in overbought territory. Oil has enjoyed quite a rally in January and it is likely time for a pullback to the rising bottoms trendline. We do have a bearish rising wedge and negative divergence on the OBV, both of which suggest a breakdown.
The 200-EMA looks like strong overhead resistance.
USO/$WTIC Weekly Chart: There is a long wick on this week's OHLC bar which is bearish. The weekly PMO is looking strong and should reach positive territory soon. Next week will likely be a struggle for USO, but the strong weekly PMO suggests it will be a bump in the road.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Bonds are working hard to establish support at $150. The RSI is negative and the PMO still hasn't bottomed in a meaningful way. $154 will be very difficult resistance to overcome for TLT.
The weekly PMO is trying to bottom, the problem is no discernible support in this area other than the recent low. Yields topped this week after a strong rise. Where TLT shows resistance, the 30-yr yield has support. We don't expect this week's rally to gain traction.
TLT Weekly Chart: The weekly chart is very bearish. The breach of support at the June low coming with a PMO that should reach negative territory soon suggests a drop to the next level of support at the 2019 top around $145.
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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