We knew that the VIX readings were sliding lower, but today it finished at 19.79. The VIX has not closed below 20 since the 2020 bull market top.
We invert our VIX because we view the VIX as a sentiment indicator. Sentiment is contrarian, so in order to have overbought territory on top and oversold on the bottom, we invert the scale.
You can see that today's closing reading on the VIX is not only overbought, but the lowest we have seen since the bull market top on February 20th 2020. I have also annotated blue arrows where the VIX has punctured the upper Bollinger Band. Typically that arrives at tops in the market.
The Rydex Ratio chart reveals that the Ratio is heading toward very overbought territory. Since the November market low the Rydex Ratio entered overbought extremes and has been oscillating. On the bright side it hasn't reached the top of this range, but remember it is extraordinarily overbought regardless. Investors are simply too complacent and bullish. The market is due for a correction, but market participants don't seem to think it is coming. We don't want you to be blindsided.
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: The market did log new all-time highs intraday but was unable to hang on to a positive close. Given today's decline, the OBV topped. This has now 'sealed' the negative divergence as we have an official near-term top. The PMO looks fairly healthy as it rises from last week's crossover BUY signal.
Total Volume was slightly less than yesterday. The RSI is positive as it sits above net neutral (50). I discussed the VIX in the opening.
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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.
Although we do not have a top on the SCI, we note the severe negative divergence it currently holds with price. The GCI rose slightly today. If we see it top before reaching a reading of 91.4 that will set up a negative divergence similar to the one that occurred at the bull market top.
We saw participation numbers top slightly today, but did not set up negative divergences.
Climactic Market Indicators: It was not a climax day. We saw a large paring back of New Highs. Notice they have been trending lower since it peaked at the beginning of the current rally.
Friday is quadruple witching so expect high volume. You'll note the pink "*" over prior quadruple witching days.
Short-Term Market Indicators: The short-term market trend is UP and the condition is EXTREMELY OVERBOUGHT.
The STOs have topped and that usually precedes a market decline. Additionally stocks with rising momentum pulled back sharply.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The intermediate-term market bias is BULLISH.
The ITBM/ITVM have not topped yet, but they have set up negative divergence in the intermediate to long term.
CONCLUSION: Seeing the VIX hitting lows not seen since the end of the bull market is concerning right now especially when it is paired with so many negative divergences on the indicators. The STOs topped in overbought territory and participation is beginning to wane. Pay close attention with the STOs turn down, they are uncannily accurate. The short-term rising trend has not yet been broken, but the indicators are breaking down so expect the market to turn very soon. Keep your stops tight or consider booking some of your profits.
** Don't forget! The FOMC meets this week and we should hear from them on Wednesday. Additionally, it is quadruple witching on Friday. Options expiration generally comes with heavy volume and little price movement.
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A new PMO SELL signal has triggered on Bitcoin. It does appear to be bouncing off support at the 20-EMA, but given this new PMO SELL signal and the negative divergence between price tops and OBV tops, we should expect a break toward support at the 50-EMA.
The rising trend remains on interest rates which will continue to put pressure on Bonds.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: Yesterday's comments still apply:
"The 20-EMA held as support and now price is pushing against the resistance zone. The double-bottom is still visible but given the last pullback took price back below the confirmation line. For now I'll keep it. It's a bullish pattern and the chart is still bullish given the positive RSI and rising PMO."
IT Trend Model: NEUTRAL as of 1/14/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: The PMO is about ready to trigger a crossover BUY signal on Gold. Price action is suspect as it nears the 20-EMA and overhead resistance at the November low. The RSI is negative but rising. It appears Gold will give us a test of resistance. Discounts remain very high which is typically bullish given sentiment is contrarian. The stage is set for a breakout, but the Dollar is poised to breakout as well. I would look for higher prices near-term, but likely not enough to reach past resistance.
Full disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: The 50-EMA is holding as overhead resistance on GDX. However, given the positive indicators and support under the surface based on participation, I am expecting a breakout. I just don't think we'll see the kind of rally we did in December and certainly not of the caliber of the summer move. Gold is acting squirrelly and a market breakdown will likely drag GDX with it. There is upside potential, but likely limited to a move to the 200-EMA.
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 pulled back toward support at the February top. The PMO is still on a BUY signal but it appears to be topping.
We could be looking at a short-term double-top. The minimum downside target would require a break down from the 20-EMA. Let's not get ahead of ourselves, it is very likely that we will get a bounce rather than a breakdown at the confirmation line.
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:
"The pennant on TLT resolved downward as expected given it is a "continuation" pattern. While this could be a reverse island setting up, I don't foresee a breakout from the steep declining trend it is currently in. The PMO turned down below its signal line which is especially bearish."
Using the weekly chart, $130 is the next strongest support area ahead. Of course with a weekly PMO that looks like that, it is hard to imagine it will stop there. The FOMC speaks on Wednesday. We don't expect a change rates, but it will be interesting to hear what they have to say about yields rising so quickly.
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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