The market was overheated and today it cooled its heels. The Swenlin Trading Oscillators (STOs) on the SPX are rising, but I thought I'd look at the STOs on a few other indexes for perspective. I wasn't thrilled with what I am seeing.
The Dow shows declining STOs and a clear negative divergence with price.
The picture is much brighter for the NYSE as both STOs are rising. However, they currently show negative divergences.
The Nasdaq is showing strength. The shows rising STOs, but again, there are negative divergences in play.
We aren't suggesting that the market is ready for a heavy decline, we are pointing out negative divergences that should temper our enthusiasm on the current rally.
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.
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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: When price resolves a bearish pattern with a bullish breakout, I find it particularly bullish. The bearish rising wedge cleared with the strong breakout to new all-time highs. The PMO is on a BUY signal and confirming these new highs. However, the OBV logged a negative divergence as it topped today. Total volume was weak on today's trading.
The RSI is positive but is getting very close to overbought territory. As I said often in today's The Final Bar show, overbought conditions can persist when there is a strong bullish bias. That is what I see here.
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 of these indicators look healthy as they continue to rise and have no negative divergences. The GCI is extremely overbought, while the SCI and BPI are overbought, but not extremely so. This can support more upside.
Participation is rising in support of the current rally. We see very overbought readings, but as noted earlier and visible from November through January, overbought conditions can and will persist if a rally continues.
Climax Analysis: No climax today. That is a good thing as any climax on these indicators would've suggested a downside initiation. The VIX is very overbought near term, but it hasn't punctured the upper Bollinger Band yet.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
On the positive side, these indicators are continuing to rise (minus yesterday's hiccup by the STO-B) and confirm the rally. However, we do have negative divergences visible. It is good to see more stocks with their price above their 20-EMA and no negative divergence. But that indicator is very overbought. We saw a few stocks lose their rising momentum and that has set up another negative divergence.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
Both ITBM/ITVM are rising, but the ITBM is now hitting overbought territory. It's only somewhat overbought, we've seen higher readings and there is no negative divergence. The ITVM is picking up speed to the upside and we are seeing more PMO BUY signals within the SPX. However, both of those indicators show negative divergences.
CONCLUSION: Today's decline set up negative divergences on many of our indicators. However, the bullish bias remains strong and the STOs are rising nicely on the SPX, NYSE and Nasdaq. Other than the negative divergences, I didn't see much damage among the indicators as most continue to rise. The market was overheated and needed to cool down. That is what happened today. Based on the indicators, I'm looking for more consolidation, not a big decline while the market digests the recent move to all-time highs.
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Yesterday's comments still apply:
"Bitcoin has found resistance at 60,000. The PMO is beginning to flatten and turn lower. Price is in a wide bearish rising wedge. At this point we have a top well-below the all-time high. Price was unable (so far) to reach the top of the wedge before turning lower. That suggests the next test of the bottom of the wedge will fail. However, it is holding support at the 20-EMA and the RSI is positive. Overall the chart is neutral to bearish."
We could be looking at a double-top for long-term yields. Today yields remained 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 attempted an upside breakout from the bearish rising wedge, but was immediately turned away. Now the rising wedge has been resolved to the downside as expected. UUP is clinging to support at the November low and the 20-EMA. Given the PMO is going in for a crossover SELL signal and the RSI is headed toward negative territory below net neutral (50), I am expecting a test of the 50-EMA.
The minimum upside target of the double-bottom on the one-year chart below was never reached. This also puts a bearish pall on the Dollar.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: Gold is rallying and given the bearish Dollar, that rally should continue. The chart is getting more bullish as the RSI just reached positive territory and the 20-EMA was vaulted; something we haven't seen since the mid-February top.
GOLD Daily Chart: The PMO bottom above the signal line is very bullish. The double-bottom will execute if price can reach above overhead resistance at the November low. Discounts appear to have peaked, suggesting gold bugs are getting slightly less bearish. Notice that when discounts peak and begin retreating, that usually marks a bottom or suggests a rally continuation.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday I said that I was fully bullish on Gold Miners. The breakout from the bullish falling wedge suggests we will see higher prices. You can also see a bullish double-bottom. The next hurdle will be the 200-EMA, but given the increase in participation and rising BPI/SCI/GCI, I don't believe it will have any trouble with it.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO rallied today, but didn't really make any headway as far as breaking above overhead resistance at the 20-EMA. The RSI is still negative and the PMO is in decline.
There is a complex head and shoulders pattern visible. Price is sitting on the neckline. The minimum downside target is around $35. While we expect a breakdown, we aren't convinced that price will venture that low.
IT Trend Model: NEUTRALas of 8/27/2020
LT Trend Model: SELLas of 1/8/2021
TLT Daily Chart: Yesterday's comments still apply:
"TLT continues to push against the 20-EMA. The resolution of the falling wedge was unimpressive; however, with a possible double-top on yields, we may finally see a breakout. Overall I would avoid investing here until we see yields actually breakdown.
The rising PMO on a BUY signal does suggest we will get that breakout, but it is still buried well below the zero line and with the EMAs configured negatively with lots of margin between them, we can't get that bullish."
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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