Consumer Discretionary (XLY) saw the 20-EMA cross below the 50-EMA. This crossover occurred above the 200-EMA so the signal is a "Neutral", not a "SELL". Neutral basically says you are in cash or fully hedged. This area was beginning to see a resurgence as the COVID "recovery" stocks are mostly in this area. However, it failed to breakout above the 20-EMA on its last two tests. Today we a long "tail" on the OHLC bar telling us that XLY closed near its lows today, even as it broke above resistance at the October top.
Looking under the hood, the deterioration in participation began at the February top. More and more stocks began losing support at their 20/50-EMAs. The PMO has now dropped into negative territory for the first time since the bear market low. This area of the market is considered more aggressive, similar to Technology (XLK). At this point, I would be considering defensive sectors that are showing promise like Consumer Staples (XLP) and Utilities (XLU).
You'll note that those two sectors are beginning to power out of their lows and participation is increasing quickly. Both are beginning to breakout and we have PMO BUY signals on tap.
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: Trading today was somewhat unusual so I'm including the 10-minute candlestick chart to give us perspective. Note that last week we had a bullish double-bottom form. Interestingly when the minimum upside target was hit, price began to turn. Today we saw a bearish double-top. It has already hit the downside target, but remember targets from chart patterns are the "minimum" upside/downside target. The next area of support lies at 3790.
Total volume decreased again. Normally I would consider that a good sign when heavy volume occurs on a decline, but note that we should be more concerned about the rising trend coming on declining volume. Price closed below the 20-EMA, but did hold support at the 50-EMA.
The PMO continues to decline and today the RSI turned down below reaching positive territory above net neutral (50). The OBV continues its decline, confirming the current downtrend.
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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 GCI dropped below its signal line on Friday. The time we had a negative crossover on this indicator, it preceded the bear market. We may not see a bear market, but this condition screams for a correction. The BPI continued higher, but hasn't made a cross above its signal line. The SCI continues to lose ground as more stocks see negative 20/50-EMA crossovers.
Participation improved slightly and we do have a positive divergence with %Stocks > 20-EMA--rising bottoms on the indicator and declining bottoms on price. Unfortunately we don't have confirmation in the intermediate term.
Climactic Market Indicators: We didn't see a climax today, although you will notice the spike in New Highs. This may seem counterintuitive. Just remember that New Highs is calculated intraday, I would bet that the majority of those stocks didn't close on a new 52-week high. The VIX remains under its EMA on the inverted scale. When the VIX oscillates below its EMA, the market is weak and volatile. The upside initiation from Friday seems to have played out during the trading day.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL.
Both of the Swenlin Trading Oscillators (STOs) edged higher today. This typically tells us to expect upside movement. Additionally, we can see positive divergences beginning on the %Stocks indicators.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The intermediate-term market bias is BULLISH.
The short-term indicators may look encouraging, but the IT indicators are less so. While both the ITBM/ITVM rose today, overall they remain in a declining trend. %PMO crossover BUY signals read the same as Friday and are also in a declining trend.
CONCLUSION: Friday's upside initiation seems to have played out during today's trading as the market opened higher and continued its rally. Unfortunately it failed to hold onto it. We are seeing some encouraging signs from our short-term indicators which are rising and in some cases starting to give us positive divergences. However, given the VIX below its EMA, the deterioration of the Golden Cross and Silver Cross Indexes and of course a negative RSI and declining PMO, this isn't a strong foundation for a new rally to all-time highs. Tread carefully.
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Bitcoin is struggling against overhead resistance at 52500. The RSI is positive and the PMO appears ready to turn back up. Price is currently staying above the 20-EMA. Look for a likely breakout above 52500 in Bitcoin.
Interest rates is seeing steeper and steeper rising bottoms trend lines. Carl and I aren't looking at this as a bearish parabolic move. It isn't that likely we will see yields drop as quickly as a parabolic formation would suggest. Higher yields continue. Note that even the 10-year yield is up to 1.59. The rising rate environment is likely to continue, leaving Bonds nowhere to go but down.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The bullish double-bottom on the Dollar is finally resolving as expected, to the upside. A measurement of the pattern suggests a minimum upside target near $25.30 for UUP. The RSI is getting overbought, but the PMO is not overbought. Last Friday we saw a new IT Trend Model BUY signal on the "silver cross" of the 20/50-EMAs. The 200-EMA is arriving soon, but given the positive momentum, I doubt it will have a problem overcoming it.
IT Trend Model: NEUTRAL as of 1/14/2021
LT Trend Model: BUY as of 1/8/2019
GLD Daily Chart: Rather than look at the 6-month candlestick chart for GLD, I'm opting to talk specifically to the $Gold 1-year daily chart. You can't see support levels on the 6-month chart. Gold is at a "decision point". It has reached strong support at the April-June lows. Last time it hit strong support at 1750, it cut through it quickly and easily. The only positive on this chart is a very oversold RSI. However, just like overbought conditions can persist in a bull market, oversold conditions can do the same in a bear market. Consider the oversold condition on Gold as "thin ice". We could see a reversal here, but given the new LT Trend Model SELL signal ("death cross") and the PMO dropping further, the best Gold can likely do here is move sideways. Yet, look at the bullish Dollar. A rising Dollar means lower Gold prices based on their inverse relationship and Gold being denominated in dollars. I don't see this as a bottom.
Full disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: Miners have been clinging to support at their June low. The PMO looks somewhat encouraging as it has flattened. However, participation continues to deteriorate. Note the SCI and GCI continue to decline. Lower prices in Gold will continue to put downside pressure on Gold Miners. We will monitor these indicators this week to see if a reversal is possible. Right now, the indicators are negative and most are moving lower.
CRUDE OIL (USO)
IT Trend Model: BUY as of 10/20/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: USO pulled back strongly today. That's very good news. It has taken the RSI out of overbought territory. USO had a "golden cross" today on the 50/200-EMAs. This gives us a LT Trend Model BUY signal for Crude Oil.
For reference, $WTIC triggered a LT Trend Model BUY signal last year in December.
The USO 1-year daily chart suggests overhead resistance could arrive around $47.50. I'll be watching for USO to pullback to support at $42.50--that could be an interesting buy point.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: TLT has softened its declining trend, but that doesn't make this chart any better. The RSI is oversold, but we've seen it move further into oversold territory. Additionally it can maintain those oversold conditions for some time. It spent half of February in oversold territory. The breakout from the steeper declining tops trendline was short-lived.
We know we are in a rising rate environment (see discussion above under "Interest Rates"). We do see support near the March 2020 low.
However, a review of the weekly chart tells us this isn't really the strongest area of support. $130 seems a more likely stopping point, but if yields continue to expand, support (strong or otherwise) won't keep Bond prices afloat.
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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