Defensive areas of the market have perked up. Interestingly, both Utilities (XLU) and Consumer Staples (XLP) are showing IT Trend Model "Neutral" signals on our Sector Scoreboard, but both are beginning to advance and could see BUY signals soon. An IT Trend Model BUY signal is generated when the 20-EMA crosses above the 50-EMA. I decided to highlight Consumer Staples (XLP) to show you the positive divergences on the chart that preceded this advance.
We need to be careful as a stiff area of overhead resistance is arriving between $66 - $68. However, notice the positive divergences that led into the current rally. The PMO just gave us a positive crossover BUY signal and the RSI has moved into positive territory. This appears to be a credible rally based on the internals.
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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.
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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 continues to contract on the current rising trend. Short-term overhead resistance is arriving right now. The PMO is trying to bottom, but hasn't in a significantly even with this steep rising trend.
The RSI has moved into positive territory and we can see that the short-term declining trend was broken today which is encouraging.
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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 rise and is nearing a positive crossover. The BPI looks healthy given its recent positive crossover its signal line. The GCI did not move higher so it remains highly overbought and is still under its signal line.
Participation numbers are improving. In the short term there is a positive divergence between the bottoms on the %Stocks > 20-EMA and price lows. This positive divergence has likely played out on this short-term rising trend now that %Stocks > 20-EMA readings are nearing overbought territory, but we could still see a few more gains eked out in the very short term.
Climactic Market Indicators: Speaking of the very short term, I note that the VIX is now above its EMA on the inverted scale. This is positive for the market short-term. We did see a slight expansion on New Highs, but overall it wasn't a climax day.
Short-Term Market Indicators: The short-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT.
The STOs are rising strongly which indicates we will see more upside. Additionally we have two positive divergences 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.
There is improvement on all of these indicators, but the ITBM/ITVM are overbought again. There is still room for them to move higher before reaching overbought extremes. This supports a possible continuation in the intermediate term.
CONCLUSION: The indicators are bullish, no denying that. Unfortunately the indicators are overbought or moving overbought. I would point out that sector rotation on the short-term Relative Rotation Graph (RRG) shows that the defensive sectors are gaining strength as they move "northeast" toward "Leading". Typically, the end of a bull market rally will see rotation into defensive sectors. Playing "defense" by rotating to these sectors and raising stop loss levels as the rally continues should serve you well.
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The rally is resuming in Bitcoin. It has now broken out above a bullish ascending triangle and the PMO has turned back up.
Interest rates are pulling back, but haven't shed their rising trends just yet.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The pullback continued today. Support is still holding and the indicators still look positive. I don't expect to see a breakdown of this support level.
IT Trend Model: NEUTRAL as of 1/14/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: Gold continues to rally off important support. The Dollar chart doesn't look that bearish, so Gold will be fighting that downward pressure. Discounts are high, but not as high as we saw before the December bounce. The PMO has flattened, but hasn't turned up yet and the RSI is still negative.
Full disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: I don't trust this rally in Gold Miners. This looks very much like a reverse island. Also notice that the 20-EMA is still holding strong as overhead resistance. The declining trend is intact. The RSI is negative. The PMO is flat but could give us a crossover BUY signal soon. The %stocks > 20/50-EMAs are improving, however, note that the BPI just topped below its signal line. There's not enough evidence to support a breakout...yet.
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 has immediately found support at the February high. The PMO has bottomed above its signal line and the RSI is positive and not overbought. We could still see a pullback to the rising bottoms trendline, but today's bounce off support suggests that may not be necessary.
The USO 1-year daily chart suggests overhead resistance could arrive around $47.50, but there is 9% gain possible before it reaches that level.
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:
"TLT broke out from its short-term declining trend as it did at the end of February. What could become interesting is a possible double-bottom developing. Yields are turning down, but their rising trend is still intact. This rising rate environment will continue to put downward pressure on Bonds."
The RSI and PMO are beginning to move higher, but we've been fooled before on a short-term breakout (see end of February).
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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