On the market open, Technology began to rally strongly. However, the SPX began to decline in the late afternoon on heavy volume. On the 10-minute candlestick the OBV dove and the PMO had a crossover SELL signal. The RSI also moved to negative territory. Price was unable to reach overhead resistance before turning downward.
While this rally could turn out to be "sticky", our indicators are still flashing warning signs.
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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: It was positive to see price hold the 20-EMA as support, but we didn't see a breakout above the February top. The PMO is was flat today as it carried the same reading from Friday of 0.99. The negative divergences are still in play. I would expect a deeper decline.
The RSI turned up and avoided a dip into negative territory below net neutral (50). Total volume was less than impressive on today's rally.
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BELOW is a link to the 3/15 trading room recording:
Topic: DecisionPoint Trading Room
Start Time : Mar 15, 2021 09:00 AM
Access Passcode: 0f$2Pf5z
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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.
Like the PMO, the BPI flattened, carrying the same reading as Friday's. The SCI and GCI are rising, but we still have a negative divergence in place on the GCI and both the GCI and SCI are overbought.
Participation did improve slightly on today's gain. The intermediate and long terms are very overbought. Stocks > 20-EMA are healthy enough at 70% without being overbought.
Climactic Market Indicators: No climactic readings on the day. We did see New Highs continue to pare back even on a strong rally. The VIX is the problem. It finished with another overbought reading that we haven't seen since before the bear market. We invert the VIX as we consider it a sentiment indicator. The lower the number the more bullish/complacent investors are about the market. Granted the VIX hasn't punctured the upper Bollinger Band, but we can see that prior overbought VIX readings have preceded declines.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
The STOs continued to drop. The STO-V is now in negative territory. This is a neutral condition, not an oversold condition. When these indicators are in decline, the market typically does too. We still have more than 50% of the SPX with negative momentum. We need those PMOs to begin rising to support a rally continuation.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The intermediate-term market bias is BULLISH.
Both ITBM and ITVM continue to decline and members of the SPX are still losing PMO crossover BUY signals.
CONCLUSION: Seeing the rally in Technology is encouraging. That sector is an excellent barometer of the health of the market. The rally is coming with bounce off the 20-EMA which was also encouraging. What's NOT encouraging are the declining STOs/ITBM/ITVM and the overbought VIX. Additionally, I would expect a new rally leg to be accompanied by strong volume and it wasn't. The 10-minute bar chart showed an increase in selling pressure to finish the day. Given the weakness of the indicators, I am not looking to expand my market exposure.
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Bitcoin is breaking down from a bearish rising wedge. Additionally you could make a case for a short-term double-top. With price losing support at the 20-EMA and the PMO declining on a SELL signal, as well as a breakdown from the rising trend that began off the February low, I am looking for a test of the 50-EMA.
Yields pulled back today which did give Bonds a lift today; however, the rising trend still hasn't been compromised.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar hit overhead resistance and was immediately turned away. Right now I see a bearish descending triangle. Price hasn't lose support at the 20-EMA yet so we could be in for another tap on the bottom of the triangle and another attempt to move higher. The PMO is near-term overbought, but we do still have a positive RSI.
The struggle to overcome overhead resistance is even more clear on the 1-year daily chart as the resistance line is at the September low. I'm not expecting much from the Dollar this week.
IT Trend Model: NEUTRAL as of 1/14/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: GLD has formed a bearish rising wedge. We've seen this behavior before and it leads to a breakdown. The 20-EMA is holding as overhead resistance, so the breakdown seems imminent. The RSI is negative. Discounts are paring back. We want them to be exceptionally high as that implies investors are very bearish on Gold. Sentiment being contrarian, that usually signals a rise. Seeing them pull back suggests a decline or consolidation ahead.
The one-year chart displays the strength of overhead resistance. Not only does it align with the November low, it also aligns with the tops in April-June. The PMO is on a crossover BUY signal so that does temper the bearish breakdown thesis. At best I expect consolidation.
Full disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: Miners are also struggling against overhead resistance. The indicators have suggested there is enough strength to get the breakout here. Gold doesn't have a positive RSI, GDX does. The SCI is rising and we haven't see a breakdown of the OBV. Today's 1%+ decline didn't upset the indicators much, so I am cautiously bullish on Gold Miners.
CRUDE OIL (USO)
IT Trend Model: BUY as of 10/20/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Crude Oil bounced constructively off the 50-EMA and rising bottoms trendline. The RSI is now positive, but the PMO is still in decline. We didn't see high volume today on USO, but the 20-EMA is holding as resistance. The overall picture for Oil is still bullish when you consider that demand for fossil fuels will be increasing as COVID restrictions continue to be lifted across the country. I'm not expecting a breakdown from the longer-term rising trend.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: TLT rallied on the decline in long-term yields. The PMO is finally turning up and the RSI is making its way toward positive territory; however, the declining trend hasn't been broken yet.
The weekly chart shows us that price is trying to bounce off strong support, but as you can see, the 20-year Treasury Yield is still above overhead resistance. Higher yields will of course keep TLT in the current declining trend and will lead to a breakdown. I don't see enough bearish activity on yields to expect a breakout on TLT.
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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