Today offered a "teachable moment" regarding On Balance Volume (OBV). The SPX closed down -0.02% and the SPY closed up +0.04%. The OBV is calculated by taking all of the volume for the day's trading and adding it to the running OBV line when price finishes higher; or subtracting it from the OBV line if price finishes lower.
Given that, the OBV for the SPX topped while the OBV for the SPY continued higher. This created an unusual circumstance. Below is the SPX daily chart. You can see that the OBV tipped over on today's decline. This new OBV top has set up a negative divergence on the SPX.
However, the OBV on the SPY continued higher due to it finishing higher at the end of the day. In the case of the SPY, there is no OBV negative divergence.
While we may not have a negative divergence on the SPY, we should take note that we have one on the SPX. When price is at new all-time highs, I would prefer to err on the side of caution so take the negative divergence as a caution flag despite the OBV on the SPY rising.
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: We've annotated the new rising trendline on the SPY. Overall the rising trend is intact, but it is showing signs of deterioration as price is drifting away from the steep rising trend. The steeper the rising trend, the more difficult it is to maintain. It isn't surprising to see this small break of this steep trend. As noted in the intro, the OBV cleared its negative divergences. The PMO is still rising but is getting overbought. The VIX has topped, but I'll address this later.
The RSI is overbought. Total volume continues to contract on the rally suggesting less enthusiasm and participation. We have a rising trend channel in the intermediate term, but price is getting close to testing the top.
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.
All three indicators are rising, although the BPI is decelerating. The GCI continues to be at historic highs based on our dataset that began in 2017.
Most of the SPX are participating in the current rally with over 87% holding their price above the 20-EMA. I did notice some slight negative divergences leading into today's all-time highs.
Climax Analysis: New Highs are somewhat climactic, but the climax is not confirmed by the other indicators. One of the biggest problems right now is the topping VIX. It penetrated the upper Bollinger Band on the inverted scale. Typically that means a day or two of decline to follow.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs have been an excellent leading indicator for DecisionPoint. Friday both of these indicators began topping. They are continuing to contract, suggesting a decline ahead or at best consolidation. The negative divergences remain in play. In the very short-term, we have a two-day negative divergence, STOs fell Friday and today, while price moved higher. Additionally, we have negative divergences on the %Stocks indicators.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
The intermediate-term indicators are a bright spot. All of these indicators are continuing to rise. The ITVM and %PMO Crossover BUY signals do display negative divergences, but overall these indicators are bullish.
CONCLUSION: While the SPY isn't showing an OBV negative divergence, the SPX is and we should take note. The short-term indicators are bearish; yet, the intermediate-term indicators are still bullish, albeit overbought. The VIX readings are overbought and with higher readings coming in, it suggests a decline in the next day or two. The market is still trending higher, but we are starting to see a drift out of the steep short-term rising trend. Look for lower prices based on the negative short-term indicators, but given bullish intermediate-term indicators, we would expect a pullback not a correction.
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Bitcoin is pushing toward new all-time highs. The PMO is turning up and the RSI is positive. I would look for new all-time highs, but be aware we have a bearish rising wedge forming.
We could be looking at a double-top for long-term yields. Yields currently remain above the confirmation line.
IT Trend Model: BUY as of 3/5/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: After breaking above the 200-EMA and out of the bearish rising wedge, the Dollar fell apart. It is below support at the November low, but it hasn't reached the confirmation line of the double-bottom. The RSI is negative and the PMO is on a SELL signal and declining. I'm looking for at least a test of the 50-EMA.
I decided to annotate a bullish cup and handle. It's not because I'm bullish on the Dollar, it just adds a different perspective. After breaking above the confirmation line of the double-bottom, price failed to reach the minimum upside target at $25.30. This support area between the November low and the February top should hold up if this is a bullish cup and handle. However, that negative RSI and very negative PMO suggest a breakdown, not a breakout.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: With the Dollar so weak, we would expect great things from Gold. Nope. Per usual it is misbehaving. The double-bottom had just executed with the breakout on Thursday, the table was set for a lengthy rally. However, price was turned away at the 50-EMA before even reaching resistance at the November low. Today it closed beneath the 20-EMA. Gold should be rallying given the bullish PMO. The RSI is now negative. Discounts are getting higher which generally is good for Gold.
There is certainly risk that price will test support at 1675 given its close beneath the 20-EMA, but the PMO just doesn't look that negative.
GOLD MINERS Golden and Silver Cross Indexes: With Gold pulling back, Miners are pulling back. They reached the 200-EMA, but that was it. The indicators still look fairly positive as participation is healthy. The most important indicators, the PMO, SCI and GCI are still rising and positive. I'm expecting the rally to resume for Miners.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: We haven't really seen a breakdown in Oil prices, they've been consolidating sideways. It is positive that support has continued to hold at the 50-EMA. Additionally I see a bullish ascending triangle. The PMO is still in decline, but could be flattening. OBV bottoms are rising. Eventually we should see an upside breakout.
There is a complex head and shoulders pattern visible, but crude oil appears loathe to executing it with a breakdown. More than likely we will see prices rebound here.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELLas of 1/8/2021
TLT Daily Chart: TLT is in a holding pattern and yields are holding above support as noted in the yield array presented earlier. I wouldn't expect much from Bonds until yields pick a direction. TLT is certainly poised to breakout with the positive PMO on a BUY signal. The RSI is negative, but not exceedingly so.
Technical Analysis is a windsock, not a crystal ball.
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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