Mortgage rates shot higher today with the 30-year mortgage rate now at 2.97% up from 2.81%. The 15-year mortgage rate is 2.34% up from 2.21%. These are significant rate hikes that will begin to affect housing prices.
When most people buy a home (or a car for that matter), they buy based on the home price that will fit the highest monthly payment they can qualify for (and usually afford). Carl gave us a great example in his last article "It's Not Nice to Fool Mother Nature":
People buy homes based upon how much the payment is per month, not the sales price, and falling rates have allowed sellers to raise home prices. But, when rates go up, the affordable home price will have to drop. For example, a mortgage rate of 2.75% results in a principal and interest payment of $2,041/month on a loan of $500,000. If mortgage rates go up to 3.75%, that same monthly payment will only work with a loan of $440,000, meaning that sellers will be taking a beating, and we'll be entering Financial Crisis v2.0.
Is the bubble beginning to thin? Most likely.
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.
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: Total volume was above average on the sell-off. The VIX came down and actually punctured the lower Bollinger Band on the inverted scale. The PMO which had turned up yesterday was pulled down sharply. One bright spot is that price did stay on top of the rising bottoms trendline. However, it's traveling in a bearish rising wedge that is just begging to be executed. Carl annotated green arrows at the previous lows. I asked him why and he pointed out that for some reason we are seeing a 15-day cycle emerge.
The RSI dropped down into negative 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.
The SCI continues to decline, but the BPI continued higher today after turning up yesterday. The GCI was unchanged but it has moved to its highest reading since 2017 where the dataset begins.
Participation dropped significantly. None of these indicators are oversold yet.
Climactic Market Indicators: Clearly a climax day! Given we've seen two prior days of rally, I would read this as an "initiation climax". We should expect more selling. When the VIX closes below the Bollinger Band, I would look for an upside reversal. The "fear factor" isn't quite oversold enough on the inverted scale.
NYSE up/down and down/up volume ratios can be also be used as climax detectors. We use the 9:1 ratio suggested by the late Dr. Martin Zweig in his book, Winning on Wall Street. These climaxes happen less frequently than those on the chart above, and they can be used to clarify a particular event.
While the NYSE Volume Ratio did not climax today, the SPX Volume Ratio did. I think that gives the bulls some hope that this isn't a selling initiation, but could be a selling exhaustion. I don't believe it is.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
These indicators turned south very quickly. None of them are oversold so we are vulnerable to further decline.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The intermediate-term market bias is BULLISH.
Both the ITBM and ITVM declined today in overbought territory. %PMO BUY signals had a negative crossover. So far a slim majority of stocks still have buy signals.
CONCLUSION: I'd like to say that today's climax was a selling exhaustion, but it looks more like a selling initiation climax which suggests prices will continue to decline. If they do continue lower that will trigger the rising wedge chart pattern and will puncture the 50-EMA. A correction is likely ahead.
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Bitcoin is holding support still, but given the new PMO SELL signal, I would look for a test of the 50-EMA.
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 closed higher on the day but still managed to drop below the confirmation line of the bearish head and shoulders. I am expecting price to continue lower. Granted the RSI is rising, but it is still negative. The PMO is attempting to rise as well, but it is below the zero line.
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IT Trend Model: NEUTRAL as of 1/14/2021
LT Trend Model: BUY as of 1/8/2019
GLD Daily Chart: With the Dollar possibly breaking down soon, Gold should do better. Currently it is holding support, but we now have a PMO top below the signal line again.
Full disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Miners pulled back after reaching the 20-EMA. I expect them to hold this area of support. The indicators are oversold. If Gold rallies like I believe it will, GDX should get some love. For now it is vulnerable to a test of the $31 level."
CRUDE OIL (USO)
IT Trend Model: BUY as of 10/20/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: A reader asked whether we should annotate a rising wedge here. Not yet. When we see an actual top over the next day or two, then we will annotate it. For now the upside breakout from the rising trend channel suggests a strong bullish bias. Crude is overbought, but that hasn't been a problem for price this year.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Yesterday's comments still apply:
"Bonds are in free fall. I don't generally sell my "Buy and Holds", but I shed TLT a few weeks ago. I don't see any relief in sight for long Bonds as yields continue to fly higher."
Monthly chart support doesn't arrive until $137.50 on the daily chart, but on the monthly chart below, support doesn't arrive until $130. Notice the strong breakout in yields. I doubt Bonds will find support until the 2016 high.
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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