We have been pointing out negative divergences that continue to pepper our indicator charts. Here is a negative divergence that you may not have seen. Since November, New 52-Week Highs have been contracting. Something else to consider is that climaxes on New Highs come at significant market tops. Today's New Highs climax arrived on a day when price fell. This could mark another exhaustion climax.
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: Options expiration was this week. As expected, volatility was low toward the end of the week. Next month is quadruple-witching expiration, so, along with low volatility, we can expect much higher than normal volume on Friday. The market closed lower today but marked a higher intraday high and low than yesterday. Given the PMO is quickly headed south and price is seated in a bearish rising wedge, this isn't likely an upside reversal point.
Price is rounding on the one-year daily chart and the RSI has begun to pull back.
SPY Weekly Chart: The market continues higher despite breaking past the top of the bearish megaphone. This confirms that the market is as overbought as we all think.
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 GCI did turn down this week but remains in highly overbought territory. Negative divergences preceded this week's top. The SCI and BPI continue lower. The BPI should drop below its signal line on Monday.
Participation in the short and intermediate term continues to drop off. Negative divergences preceded this week's market top. The continued decline of these indicators confirms the current declining trend. If the market is to continue higher, participation needs to improve.
Climax Analysis: We've highlighted in the shorter term negative divergences on New Highs. As noted in the introduction, we do have a climactic reading on New Highs. Total volume increased on today's decline. The VIX, on the inverted log scale remains above its EMA which suggests short-term internal strength. We expect to see it drop next week. That would signal the continuation of this week's decline.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL.
STOs rose slightly, but remain in a declining trend nonetheless. A few more stocks picked up positive momentum, but overall they are confirming this week's top.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
Intermediate-term indicators all topped this week with price. The bullish bias remains in the intermediate term, but the deterioration %PMO Crossover BUY signals suggests that is starting to reverse. The negative divergences are quite clear.
CONCLUSION: The market topped this week. There is still a strong bullish bias in the intermediate term but these indicators also topped this week alongside price. Add to that the dominant bearish rising wedge pattern on the daily chart and we should see a continuation of this week's price decline.
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Bitcoin continues its flight into the atmosphere. It should catch up to the Mars Rover soon. Remember that parabolic price formations typically end in disaster with a swift decline that ends at the last base. However, the PMO suggests there could be even more upside for Bitcoin.
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 accelerating their rise. The rising trend looks strong and should put even more pressure on Bond prices.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: A cup and handle chart pattern revealed itself at the end of last week, but the pattern has busted. It appeared that price had executed this bullish chart pattern with a rally above the 50-EMA. However, price fell and consequently killed the pattern. The PMO has topped for a second time below the zero line which is especially bearish. With more money being circulated through stimulus, the Dollar should remain weak.
UUP Weekly Chart: The weekly chart is beginning to improve with a new PMO BUY signal. The dominant pattern on the chart is a bullish falling wedge. It had appeared the pattern was going to resolve upward as expected, but the 17-week EMA and the top of the pattern held as overhead resistance. The weekly RSI still remains negative and is headed lower. Despite an improving PMO, we remain bearish on the Dollar.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: UUP was down -0.24% but Gold was up +0.41%. That tells us that buyer participation increased. The RSI has turned up and the PMO appears to be decelerating. With the likelihood of a weak Dollar and a weak market, this could be Gold's time to shine. The reversal off important support today suggests this could be the next bottom for Gold.
Support at 1750 held tight this week. If lose that level, the March highs at 1700 would be next.
GOLD Weekly Chart: Gold has formed a large bull flag on the weekly chart. The weekly PMO and RSI are declining quickly suggesting current support won't hold. A trip to 1700 would keep price in this bullish formation and move the PMO and RSI into oversold territory. While we are optimistic that 1750 will be an upside reversal point, we should prepare for a trip to 1700.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are oversold and sitting on support. Indicators are getting very oversold. Should Gold begin to reverse on current support, GDX should follow suit. In the meantime it will likely cling to this support area at the February top/June low given how oversold the indicators are getting.
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 pulled back yesterday and today as it reached the top of its rising trend channel. The RSI is already freed from overbought territory. The PMO is topping in overbought territory. This remains a strong area of the market, but a pullback will be welcome to clear these overbought conditions.
USO/$WTIC Weekly Chart: The weekly PMO is strong and the RSI is positive. Any decline in Crude Oil is likely going to be a hiccup to clear overbought conditions in the short term. The weekly chart suggests more upside.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: With the parabolic increase beginning on yields, it isn't surprising to see the reverse on long Bonds. Even though the RSI and PMO are oversold, with yields rising so quickly we would expect a continuation of the current decline and possible acceleration of that decline.
The next area of support lies at $137.50 at the March low. We expect it will be there very soon.
TLT Weekly Chart: The weekly PMO is getting oversold. The RSI has nearly reached oversold territory as well. While $137.50 could support price for an upside reversal, the weekly chart suggests $130 is the stronger support level.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & Erin Swenlin
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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