It shouldn't surprise us that Technology (XLK) is sporting negative divergences on its indicators given the SPY has been generating them even as price reaches new all-time highs. Technology leads the market. You'll notice that price patterns on XLK are generally the same as the SPY.
Many technicians are moving very bearish, including our "perma-bull" colleagues. Sentiment is contrarian so it could mean we will be "climbing the wall of worry" for the next week or so. However, these guys and gals are usually right at reversal points. This isn't a matter of capitulation at the end of a bear market; right now, it is a matter of ridiculous valuations and overbought price conditions. Therefore, hearing the technicians that we trust becoming highly bearish concerns us.
We have annotated deep negative divergences in play on XLK. The Silver Cross Index (SCI) hasn't crossed above its signal line. In fact it is topping below it. The Golden Cross Index (GCI) is extraordinarily overbought right now. The %Stocks > 50-EMA actually turned down today, even while XLK logs new all-time highs. We sense that we have walked onto thin ice.
Here is a sector to watch next week. You'll see a brighter picture on the Materials sector (XLB) chart. XLB has begun to rally and today closed above the 20-EMA. The PMO turned up just today and you can see that participation is improving and isn't overbought. There are no negative divergences mainly because XLB has been in a downtrend. Overall, within this sector you'll find a few very strong looking industry groups with excellent potential. Subscribe to DP Diamonds and you'll see which in particular look to have a great week ahead.
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 SPY logged new all-time highs again today. Price is nearing the top of the rising trend channel. That has resulted in pullbacks or at least some consolidation. Despite the rising PMO, the top of this channel will likely keep price somewhat in check, cooling the current short-term rising trend annotated with the red dashed rising bottoms trend line.
The RSI is positive and rising. The OBV has broken to a new high with price; however, we note that Total Volume has been declining while price rallies signaling a possible exhaustion.
SPY Weekly Chart: Price is maintaining along the top of the bearish megaphone pattern. When it loses its rising trend, it could get dicey with a drop back into the megaphone. That could mean the beginning of something far more sinister than a pullback or even correction. It is bullish to see a weekly PMO bottom above the signal line, but the weekly PMO is highly 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.
Negative divergences are still in play as price made new all-time highs but the indicators have not. The SCI did turn back up and we have a positive crossover for the BPI. The GCI is flat from yesterday, but it is in extremely overbought territory.
Participation continues to improve, but so far we still have negative divergences in the short and intermediate terms.
Climax Analysis: We saw climactic behavior to start the week. Those high positive readings turned out to be buying initiation climaxes. No climaxes to report today. The VIX continues to climb and hasn't reached the upper Bollinger Band on the inverted log scale. We likely should pay closest attention to the light blue horizontal dashed line on the VIX. We are reaching overbought readings on this inverse scale.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
It didn't take long to reach overbought conditions this week on the STOs. The negative divergences remain in the intermediate term for %Stocks > 20-EMA and %Stocks with PMOs Rising. These conditions could change if they both set a higher tops.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL. The market bias is BULLISH.
All of these indicators are rising which is positive. %Crossover BUY Signals had a positive crossover today. The negative divergences so far are persisting.
CONCLUSION: The market is making new all-time highs, but our indicators are not making new highs. This has set up many negative divergences. The STOs are already overbought and price is reaching the top of the intermediate-term rising trend channel. The VIX is reaching overbought readings. Next week the stage is set for a pullback to the bottom of the intermediate-term rising trend channel. Given the ITBM/ITVM are still rising and not overbought, as well as the bullish bias in the intermediate term, a deep correction doesn't seem likely... yet.
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We have added Bitcoin to our weekly and daily coverage because interest is huge, but its inclusion should in no way imply a recommendation.
Currently price is rising after breaking out of a bullish falling wedge. The PMO has nearly triggered a crossover BUY signal. Look for price to challenge all-time highs again.
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 pulled back today but stayed above the 50-EMA. UUP is vulnerable to a test of the short-term rising trend and the 20-EMA. The PMO is topping below the zero line in near-term overbought territory and the RSI is dropping. At a minimum we would expect a test of both the rising trend and 20-EMA.
UUP Weekly Chart: The weekly chart is hinting at a new rally for UUP with the breakout from the bullish falling wedge accompanied by a rising PMO. Price is nearing strong resistance at the August low. The weekly PMO and falling wedge suggest it won't pose a problem. However, the daily PMO isn't completely on board as it tops below the zero line.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: Gold had a very difficult week. It reached oversold territory and today it did rebound. The PMO has decelerated and the RSI has turned up. Discounts have increased, meaning bearish sentiment is increasing again. Discounts are not extended enough to call for a reversal, more aptly they are characterizing lack of interest in Gold which isn't surprising.
Should Gold set a cardinal low, it will be positive as price will not have needed to test support at the November low before turning up. However one good day doesn't mean we will see a strong continuation. The Materials sector does look good, but Gold and Miners are probably the least favorable of the industry groups within.
GOLD Weekly Chart: As far as the weekly chart, the declining trend channel or flag held price in check this week. It appears Gold is preparing to move back to the bottom of that channel. The PMO supports this hypothesis.
GOLD MINERS Golden and Silver Cross Indexes: We're seeing some rising trends on the indicators for GDX, but price isn't showing it. Price is still bounded within an intermediate-term declining trend channel. Price has yet to stay above the 20/50-EMAs. Price is sitting on support at the November low and could be preparing to breakout. Problem is we have been faked out numerous times as price has made several attempts to break the declining trend with no real success.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Crude Oil rallied all week long. Price has finally reached above the 200-EMA. Currently, price is holding within a bearish rising wedge and the RSI is overbought. On the other hand, the PMO has just triggered a BUY signal. We would expect to see some consolidation along the 200-EMA to clear RSI overbought conditions.
Price has not been above the 200-EMA since before the bear market and pandemic. This is very bullish.
USO/$WTIC Weekly Chart: Price closed above the 43-week EMA for the first time since losing it at the beginning of 2020. WTIC has cleared its own resistance level just above $50. The PMO has hit positive territory. This should continue to be a vibrant area of the market.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: The bottom of the chart is not support. So where does support lie?
Obvious support lies all the way down at $137.50, but using the "Volume by Price" overlay, there is possible support around $142.50. In any case, both of those levels mean a huge loss in value.
TLT Weekly Chart: The weekly chart hints that support lays closer at around $145 or the 2019 high. The weekly PMO has fallen below the zero line and continues lower. The RSI is negative and not yet oversold. Price may not be able to take advantage of that level of support given the weakness of the indicators and the clear rising trend in yields.
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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