What a difference a day makes, right? The market, despite falling indicators, rallied strongly. Strong enough to trigger what we call a "climax day". Climaxes are marked by extreme readings in Net A-D, Net A-D Volume as well as New Highs. Usually they arrive with a strong move in the VIX. I'll be analyzing the upside initiation in the "Climax Analysis" section.
I want to point out that we have a textbook bullish engulfing candlestick. The PMO which had topped, is rising once again. This is indicative of the strong bullish bias that continues to fuel the market higher.
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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 didn't have to test the 20-EMA before reversing direction. One not so "climactic" indicator is Total Volume. On a strong rally day, especially one that is creating climax readings, we want to see strong volume coming in. Instead Total Volume fell back. The two-day decline pushed the RSI out of overbought territory, but it is headed there in short order.
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 continues lower which is also a wet blanket on the rally. The GCI paused and the SCI continues higher even while stationed in overbought extremes.
Many of the stocks that lost support at their 20/50-EMAs yesterday, regained those support levels on today's rally. Readings remain extremely overbought.
Climax Analysis: Net A-D pushed upward into the climax zone. Net A-D Volume didn't quite get there, but I'll discuss this in the next section. The VIX spiked and is back above its EMA on the inverted scale. New Highs weren't where we saw them on the last climax, but they are elevated. Given that these readings are coming off a two day pullback, I am reading this as an upside initiation climax.
NYSE up/down and down/up volume ratios can be also be used as climax detectors. We use the 9:1 ratio suggested by the late Dr. Martin Zweig in his book, Winning on Wall Street. These climaxes happen less frequently than those on the chart above, and they can be used to clarify a particular event.
I checked our volume ratio charts and while we didn't see the 9:1 ratio, readings were very elevated and in my mind are confirming today's upside initiation climax.
One thing to keep in mind, the last upside initiation climax off a 2-day decline at the end of February, did not pan out.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL.
The STOs both turned up today which does suggest we will see higher prices to finish the week, but they are acting jittery and are flattening. The signals tend to be better when we have a clear trend that is broken.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
Both of these indicators turned back up too. The ITBM is very overbought, but we have seen higher readings. Interestingly, we have yet to see a substantial increase in PMO crossover BUY signals. It is far from overbought, but the weak readings are concerning. We haven't seen broad participation since November of last year. Usually you need that to fuel a rally. Of course, it hasn't seemed to be a problem for price this year. Notice we had the same gyrations and negative divergence going into the 2020 bear market.
CONCLUSION: This week's decline ended abruptly with a strong rally. Given we have a climax after a two-day decline, we believe it is an upside initiation climax. Given the short and intermediate-term indicators have turned up on a bullish engulfing candlestick, we are looking for higher prices. However, underlying participation is questionable, so we're not looking for a lengthy rally.
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We are now seeing price below the bearish rising wedge. As noted previously, the 50-EMA is typically a reversal point for Bitcoin, but it is struggling to hold that level. The PMO and RSI are quite negative so we are looking for a test of the 50,000 level.
Long-term rates are now in a declining trend.
IT Trend Model: BUY as of 3/5/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: UUP made an attempt to break back above resistance, but was stymied and closed on its low for the day. The PMO is about to hit negative territory and the RSI is negative. We anticipate lower prices as the 20-EMA is closing in on a negative crossover the 50-EMA. That would give us an IT Trend Model SELL signal since the EMAs are below the 200-EMA.
The next area of support is just above $24.40, but the strongest level of support doesn't arrive until $24.10.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: Gold continued higher and has now reached overhead resistance at the 200-EMA. Technically it did close above the 200-EMA. The PMO just hit positive territory and the RSI is positive and not overbought.
The double-bottom has resolved to the upside as expected. The minimum upside target is around $1875. Discounts are contracting so investors are getting less bearish on Gold.
GOLD MINERS Golden and Silver Cross Indexes: GDX continues to soar higher. I'm kicking myself for not buying it when I went officially bullish on it just before it broke above the 200-EMA. Now I'll be waiting for a pullback. We may not see price move much lower though. The technicals under the hood are very bullish. I especially like the rising SCI and GCI. The BPI and RSI are rising and not overbought.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: The PMO crossover BUY signal was short-lived. Price broke back into the prior trading range and closed below the 20-EMA. The RSI is barely positive. Likely USO will test the 50-EMA before it rallies again.
The strongest area of support is at $39, but I expect the 50-EMA to hold as support.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELLas of 1/8/2021
TLT Daily Chart: With yields in a declining trend we would expect TLT to be faring better. Additionally, the PMO has been rising for weeks. The RSI is positive. However, price cannot break above the 50-EMA.
Given the indicators remain positive and yields are in a declining trend, we do expect to see price break above the 50-EMA.
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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