Long-term treasury yields fell sharply today. We had been watching a double-top develop for a weeks. The double-tops have now resolved downward as expected. As a consequence, Bonds are breaking out; in particular we've highlighted the 20-Year Bond ETF (TLT) in the bottom window.
Bonds have beaten down severely and have plenty of upside potential should yields continue in the declining trend that began in late March.
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: After creating a less steep rising trend, the market jumped to new all-time highs. This has put the RSI in very overbought territory. The PMO is still rising. Historically the PMO on the SPY oscillates between -2 and +2, so it is now overbought. Volume was slight higher. Don't forget tomorrow is options expiration so we could see a pop in volume and less volatility. The VIX had punctured the upper Bollinger Band on the inverted scale which generally means a decline ahead. Interestingly, the VIX readings did rise on a very bullish day, suggesting participants like myself may not trust this rally.
Price bumped against the top of the rising trend channel. This is when we would expect to see a pullback toward the bottom of the channel.
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 BPI turned back up today, rising alongside the SCI and GCI. Participation is strong based on these indicators. That can sustain a rally. However, these readings are also highly overbought, so think "thin ice".
Similarly, these readings tell us there is support for this rally. The problem is extremely overbought conditions. I also spot a negative divergence in the short term.
Climax Analysis: It wasn't a typical climax day, but we did see climactic readings on New Highs and Net A-D. Given the VIX Bollinger Band puncture and the extension of this rally, I would view this as an exhaustion in the making.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs turned up today and we saw a few more stocks with PMOs rising. As noted earlier, there is a slight negative divergence on short-term participation. These indicators are usually quite prescient at market tops and bottoms so a direction switch catches my attention.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
Both indicators are rising again, but the ITBM is getting overbought and we have a negative divergence on the ITVM. There is also a negative divergence on %PMO Crossover BUY signals. It is shocking to see the near vertical rally on the SPY not equate to more stocks on PMO BUY signals. While this tells us there is still room to run for many SPX stocks, it does concern me that participation in this regard has been mostly stagnant this month.
CONCLUSION: Given the force of the current rally, the bullish bias and rising indicators on nearly every chart, it doesn't make sense to hold a strong bearish stance. The market could care less about overvaluation. The economy is pumping along on stimulus and now we are seeing an expansion in jobs and retail sales. However, the market can't rise forever. The VIX and climactic readings on our ST Climax chart do suggest a possible decline in the next day or two, but rising STOs tell me not to expect a correction or serious pullback...at least not yet.
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Notice that Bitcoin didn't have to test the bottom of the rising wedge. This set up a move to test the top of the wedge. Now we have the opposite problem. Price did not make it to the top of the wedge before turning lower. The PMO unenthusiastically crossed over its signal line and is already flattening. The RSI is still positive. Just prepare for a possible near-term downturn for Bitcoin.
IT Trend Model: BUY as of 3/5/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar finished the day mostly unchanged which keeps price below resistance at the February high. The indicators remain negative so we aren't expecting a rebound yet.
The next area of short-term support is at $24.60.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: Excellent rally on Gold today as price closed and popped above the 50-EMA. GLD was held up at overhead resistance.
However, $GOLD did manage to peek above resistance and close on it. The indicators remain very positive. Gold should continue higher... but Gold does have a tendency to misbehave.
GOLD MINERS Golden and Silver Cross Indexes: Exciting breakout above the 200-EMA today. Today this breakout was confirmed with a "silver cross" of the 20/50-EMAs. This results in an IT Trend Model "Silver Cross" BUY signal. The PMO is now in positive territory and participation is strong among members.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil is continuing to rally after yesterday's breakout. I'm a fan of this area of the market. There is a positive RSI and the PMO is nearing a crossover BUY signal.
The breakout from the bullish ascending triangle suggests we will challenge last month's high and beyond.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELLas of 1/8/2021
TLT Daily Chart: With the breakdown in treasury yields, TLT soared higher. It has been in a holding pattern for weeks as yields teetered along support levels. The oversold PMO crossover BUY signal has been suggesting we would see this turnaround, but it has been in negative territory which does temper expectations. The RSI is now positive, rising and not overbought. The 50-EMA is the next line of overhead resistance, but I expect it to punch through now that yields have broken down.
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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