Today the weekly PMO crossed below its signal line. This hasn't occurred since the early 2020 bull market top. The chart isn't all bad given the positive RSI and rising OBV. However this signal should be heeded. They don't happen often and they usually lead to sustained declines.
At the same time, admittedly in a strong bull market these signals haven't hurt the market gravely. Given the strong bullish bias in the market currently and the positive RSI this may not lead to another bear market.
However, at issue is the health of our other indicators. Readers of the DPA know the many problems on the DecisionPoint indicators, from overbought to negative divergences, the indicators tell us to beware of this new IT PMO SELL signal.
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: The most serious negative divergences in our estimation are the divergences on the OBV and PMO. Declining tops on these indicators matched with new all-time highs earlier in the week set up these negative divergences suggesting a decline was imminent. Our other warning this week was the very overbought VIX.
You'll note that we have a symmetrical triangle (annotated in black). We did get the upside breakout as expected from this continuation pattern. Support could be found at the January top ($385), but now the PMO is headed for a SELL signal leaving us less than optimistic.
We have a bearish rising wedge on the one-year daily chart. Additionally, we could be looking at the beginning of a double-top formation. Price dipped below the 20-EMA but managed to close above it. You'll notice very high volume. This is associated with quadruple witching today. The RSI remains in positive territory but could reach negative territory below net neutral (50) early next week.
SPY Weekly Chart: Price did set new all-time highs this week, but ultimately closed down. The weekly PMO SELL signal sets the stage for a continuation of the decline that began this week.
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 negative divergence remains on the SCI. It is still rising, but we saw the GCI top this week. This set up a negative divergence, we haven't seen this condition since the beginning of the bear market. The BPI is headed lower and this week it set up a negative divergence in the intermediate term.
Today participation shrunk on %Stocks > 20-EMA. The reading is no longer overbought, but it is far from oversold. We didn't see as much contraction on the %Stocks > 50/200-EMAs so consequently they remain overbought.
Climax Analysis: We didn't see a climax this week. New Highs popped yesterday, but fell sharply today. The VIX did finish the day with a lower reading and it does remain above its EMA on the inverted scale. This could give bulls a little something to hang their hat on going into next week, but there is little else to suggest a rebound.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL.
The STOs have now entered neutral territory, but their continued decline signals lower prices ahead. %Stocks indicators pulled back, but as with others, they are not oversold and can accommodate more downside.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is EXTREMELY OVERBOUGHT. The market bias is BULLISH.
The ITBM and ITVM are both headed lower after topping in extremely overbought territory. Today %PMO Crossover BUY signal crossed below the signal line.
CONCLUSION: The market began to top this week after setting up negative divergences on numerous indicators when it hit new all-time highs. The weekly PMO SELL signal and topping intermediate-term indicators suggest lower prices not only in the short term, but in the intermediate term. Nearly all of the indicators are overbought and need to decompress further. The stage is set for a sustained decline next week so plan on babysitting your portfolio more closely or consider setting and tightening stops.
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Bitcoin now has a PMO SELL signal, negative divergences on both the OBV and PMO and now a bearish rising wedge. Support may have been found on the 20-EMA, but this pattern and PMO SELL signal suggest it will fail soon.
Longer-term interest rates have been rising since the August low. After a brief pause, to set a less accelerated rising trend line, new one-year highs were made this week.
With long-term interest rates on the rise, we want to watch the 30-Year Fixed Mortgage Interest Rate. People buy homes based upon the maximum monthly payment they can/will pay. As rates rates rise, a fixed monthly payment will carry a smaller mortgage amount. (See table.) As mortgages are forced to shrink, real estate prices will have to fall, and many sellers will increasingly find that they are upside down with their mortgage.
This week the 30-year mortgage interest rate increased from 3.05% to 3.09%.
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar didn't do much this week. The PMO is rising and the RSI is positive but price wasn't able to challenge this month's price high. Price found support at the 20-EMA and there is an IT Trend Model "silver cross" BUY signal.
Resistance at the August and November bottoms is holding tightly. However, based on the PMO and RSI, we would expect to see a breakout next week.
UUP Weekly Chart: The weekly chart looks very bullish with a bullish falling wedge and an oversold weekly PMO BUY signal. The weekly RSI is still negative, but should reach positive territory next week.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: If the Dollar is set to breakout, Gold will have difficulty continuing the rally off the March low. The PMO is looking good on a new PMO BUY signal this week; however, there are few things working against Gold other than a rising Dollar. There is a bearish rising wedge and a negative RSI. Additionally the 20-EMA is holding as overhead resistance.
Discounts are elevated suggesting traders are bearish on Gold. Sentiment being contrarian, that could help the rally; however, the 20-EMA and the November low will likely pose stiff resistance so we don't expect a breakout near-term.
GOLD Weekly Chart: The weekly chart is slightly more favorable given the bullish falling wedge and price's bounce off the bottom of it. However, the weekly PMO is in decline and nearing negative territory. The weekly RSI is negative and we have a negative 17/43-week crossover ahead.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners rallied out of the declining trend this week but have gotten hung up on the 50-EMA. The PMO BUY signal and positive RSI suggest a breakout ahead. The SCI has a positive crossover and the GCI has bottomed. The BPI is nearing a positive crossover. Participation has pulled back slightly, but overall the readings could support more upside.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Huge pullback for USO yesterday that took price to the 50-EMA. It is already rebounding and has sustained the intermediate-term rising trend. The RSI is already back in positive territory and the PMO is decelerating.
USO/$WTIC Weekly Chart: When looking at $WTIC, it isn't surprising that we pulled back on USO. Strong overhead resistance was reached. Based on $WTIC, more decline is certainly possible as it hasn't hit support yet. Overall this area of the market should rebound soon given outside political pressure and tightening of supply levels.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Bonds are in free fall. Yields are showing no sign of decline. The PMO continues to decline and the RSI is very negative.
TLT Weekly Chart: The weekly chart holds the most information. The daily chart doesn't show visible support and we can see the breakout on the 20-Year Treasury yield. The weekly PMO and RSI are very oversold, but with no sign of a reversal. Support may be arriving at $130, but the indicators and yield tell us it won't likely hold.
Technical Analysis is a windsock, not a crystal ball.
-- Carl and 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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