It happened again today. The Volatility Index ($VIX) punctured the upper Bollinger Band on our inverted log scale. Why does this matter? Typically punctures of the upper Band precede declines. It doesn't tell you the magnitude or length, but it does tell us to be alert for price declines.
It isn't always disaster, notice last August's puncture. It merely resulted in a slow down of the rally. Let's see how this fits into the context of our other indicators.
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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: The market rallied to new all-time highs today. I was able to annotate a rising trend channel today that has now overpowered the bearish rising wedge. Notice that the negative divergence on the OBV is clearing in the intermediate term. In the short-term, there is no negative divergence. However, I still have heartburn over the low volume and as noted in the lead story, the overbought VIX. When we talk "overbought" on the VIX, that is near term. If you look at the lead chart, we know that VIX readings were below 12 before the bear market crash.
The RSI has entered overbought territory above 70. We know that the RSI can stay overbought, but typically that is a sign of a decline ahead. The PMO is on a BUY signal and rising to confirm the rally.
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.
Participation as far as the SCI, BPI and GCI looks healthy as all three rose today and there are no negative divergences. The biggest problem with these indicators is that they very overbought. Until they begin to show some deterioration, they are confirming the rally.
Participation contracted again on new all-time highs. That is a negative divergence in the very short term. However there are no negative divergences in the short or intermediate term.
Climax Analysis: No climax today. There was a slight increase in New Highs. Past that, breadth isn't enlightening us yet. I already mentioned the VIX and low total volume as problems.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
Not sure what to make of the flat STO-B. On the bright side it isn't really declining and its partner, the STO-V is still rising. While the %Stocks > 20-EMA has no negative divergence, all of the other indicators do. It's shocking to think that only half of the SPX members have rising momentum. We need to see wider participation than that.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
The ITBM contracted slightly today, but the ITVM continued higher. Given we have only half the SPX components with rising momentum and then add that we saw fewer PMO crossover BUY signals on new all-time highs, I am seeing some warning shots. Earlier this week, I liked that we had "room to grow" on those %Stocks indicators, but we need to see them actually grow, especially on new all-time highs! We have negative divergences on the ITVM and %PMO BUY Signals.
CONCLUSION: The rally to new all-time highs continued, but on the back of fewer stocks given the depressed %PMO Rising and %PMO BUY Signals indicators. Most of the other indicators are still rising and while we do see some negative divergences, some are disappearing as price continues higher. The overbought VIX could be considered a problem, but we know in a strong bull market, readings can move even lower. Overall, we have a new rising trend channel visible and many rising and confirming indicators. We expect higher prices, but given the deterioration of internal momentum within the SPX components, look for froth or consolidation along the way.
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Yesterday's comments still apply:
"Bitcoin has found resistance at 60,000 and now it is back below the 20-EMA. The PMO has topped below its signal line and continues to fall. It is not oversold. Price is in a wide bearish rising wedge. At this point we have a top well-below the all-time high. Price was unable to reach the top of the wedge before turning lower. That suggests the next test of the bottom of the wedge will fail."
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 lost support and is headed to the 50-EMA. That area isn't likely to hold given the now negative RSI and new PMO SELL signal.
The double-bottom seems to have finished its job, but with price not reaching the upside target. The 50-EMA does overlap the 50-EMA somewhat so that could be a stopping point before lower prices ultimately prevail.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: Gold is headed higher and has officially popped above its confirmation line. It isn't a decisive 3% above the confirmation line, but it looks pretty good as the RSI is rising in positive territory and the PMO continues to make its way toward the zero line.
I would expect to see a breakout for $GOLD. There really are no negatives to this chart. Even discounts are high, suggesting bearish sentiment. Bearish sentiment is bullish for price.
GOLD MINERS Golden and Silver Cross Indexes: I am loving Gold Miners right now, especially on today's break above the confirmation line of the double-bottom pattern. The PMO has just reached positive territory and the RSI is positive and not overbought. We are seeing wide participation in this rally amongst the industry group.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: I decided to annotate a bullish ascending triangle in the short term for USO. It suggests and upside breakout ahead.
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 managed to close above the 20-EMA. The RSI is nearly positive and the PMO continues to rise. Yields are not breaking down yet and that has TLT not breaking out yet.
We expect to see an upside breakout given the double-bottom. You can see that the 20-Year Yield is getting close to breaking down. That will get TLT rolling to the upside.
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.
Helpful DecisionPoint Links:
DecisionPoint Alert Chart List
DecisionPoint Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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