The Energy sector (XLE) at a "decision point". I've been keeping a close eye on this sector to take advantage of a rebound that is likely to come very soon. Currently price is sitting on important support. Not only is it sitting on the near-term March low, it is also sitting on the 50-EMA. The 50-EMA has been a spring board since the sector gapped up above its 50-EMA back in November. Additionally, price is right on the rising trendline.
Based on the internals, it doesn't look too enticing yet. There is a negative RSI and the PMO is still in decline. However, I'm noticing some improvement (very slight) on participation as the SCI is turning up and few more stocks are finding their way above their 20/50-EMAs. The BPI is ugly and does suggest we will see a breakdown here, but keep an eye on this one, we may catch it at a low.
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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: Price is managing to mostly hold on to the steep rising trendline. The PMO is still rising but is getting overbought. Total volume also remains well below the annual average.
The RSI is hitting overbought conditions that have been fatal before. Additionally, price has just about hit the top of the rising trend channel. This intermediate-term rising trend can remain intact even should price fall to $395. The market is overdue for a pullback.
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.
Today the BPI turned over today, but the SCI managed to edge slightly higher. The GCI rose slightly and is extremely overbought as it sits at its highest reading since we began recording it in 2017.
We have a short-term negative divergence as more stocks continue to lose support at the 20-EMA. I also noticed that we have a slight intermediate-term negative divergence as more stocks lose support at the 50-EMA. Given that we made new all-time highs today we should be seeing more participation, not less.
Climax Analysis: No climax today. The VIX remains overbought on the inverted scale, but given the previous punctures of the upper Bollinger Band, it is positive that price is continuing to move higher. Breadth was negative today, which adds another negative divergence to consider.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs continue to contract, but we haven't seen the price damage that we would expect to see when they top. This is a testament to the strong bullish bias among market participants.
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 finally turned down today. With new all-time highs, it should worry us that these indicators have topped. Two negative divergences are visible on these indicators.
CONCLUSION: New all-time highs were reached again today, yet we saw deterioration on many of our indicators. In particular seeing damage on the IT indicators and BPI on new all-time highs is a big problem. The bullish bias remains strong and the rising trend is still pretty much intact in all timeframes, however we believe it prudent to prepare for a pullback or at best consolidation.
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Bitcoin has hit new all-time highs and given the positive and not overbought RSI and PMO, we expect to see price challenge the top of the bearish rising wedge.
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: The Dollar continues to break down and has now reached support at the February top. Given the negative and falling RSI as well as the PMO SELL signal and continued to decline, I don't expect that support to hold.
I had annotated a cup and handle pattern last week, but I don't believe it is a good representation of what is happening with the Dollar. Given the negative indicators, we are looking for price to fall lower so a bullish chart pattern doesn't fit.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: Gold profited from a falling Dollar, but it also garnered more participation given it was up twice as much as the percentage the Dollar was down. Seeing price hold the 20-EMA is positive, but there is overhead resistance to contend with at the confirmation line for the double-bottom pattern.
The rising and positive RSI and the rising PMO on a BUY signal do suggest we will see the breakout above the 50-EMA that we've been waiting for.
GOLD MINERS Golden and Silver Cross Indexes: I still like Gold Miners, but they are struggling to breakout above the 200-EMA. However, the indicators look very positive and suggest that breakout is imminent.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Price closed above the 20-EMA and appears ready to test the top of the bullish ascending triangle. The PMO turned up slightly today and the RSI has now reached positive territory. XLE is ready to recover and a breakout for Oil will seal that deal.
If we get the breakout, we can expect an 8%+ upside move to challenge March highs.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELLas of 1/8/2021
TLT Daily Chart: TLT is about to breakout above resistance at the late March top. At this point, we are waiting for yields to lose support. There is a double-top on long-term yields, but the confirmation line has not been broken yet. I expect to see a breakout here. The RSI just entered positive territory and the PMO is rising on a BUY signal.
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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