Beginning in February, Renewable Energy stocks began to correct. There have been many attempts to right the ship, but all have been unsuccessful. This has created a bearish descending triangle on the Solar ETF (TAN). Today we had a strong upside breakout from this bearish pattern. Typically a rally out of a bearish pattern is especially bullish. The RSI is now positive for the first time since the correction began and we have a strong crossover BUY signal. Volume is coming in and it is beginning to outperform the SPX.
It looks very good right now. However, having been burned (no pun intended) trying to catch the recovery on Solar, we need strong confirmation. That would come with a breakout above the 50-EMA. Even after that there are layers of overhead resistance to overcome. Depending on your risk profile, you could consider it right now, just know that it will be difficult to move higher given the overhead resistance ahead.
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.
Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!
MAJOR MARKET INDEXES
For the week:
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.
For the Week:
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: The market took a minor hit on Thursday when the Biden administration announced its intention to double capital gains taxes, making them the highest on the planet. Worse, they are to be retroactive to January 1, 2021. But as we said, the market seemed to take it as a minor issue, and the market remained in the narrow range established for the week. We could be looking at a bull flag, but the PMO is topping and we've hit the top of the rising trend channel again.
Since the market hit a new intraday all-time high, the OBV is technically showing a short-term negative divergence.
SPY Weekly Chart: The SPY was down this week. The weekly RSI is overbought and history shows that can be dangerous. The weekly PMO decelerated slightly and is overbought. We currently are in a very steep rising trend. Steep rising trends are difficult to maintain.
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 is trailing off. The SCI topped this week and today the BPI had a negative crossover its signal line. The GCI remains at its highest reading since 2017.
You'll notice that we've moved the vertical red dotted line over to today. This is because we did have an intraday all-time high. This has created new negative divergences in the very short term.
Climax Analysis: We did see a climax on Net A-D. New Highs contracted and the VIX is now being squeezed by the Bollinger Bands. Notice the squeeze is relieved by market volatility. Volatility usually arrives in the form of a decline. While we do have a climax on Net A-D, it isn't likely signaling an exhaustion or initiation. We're likely to see more churn.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
These indicators are our compass when the market gets frothy or indecisive. Unfortunately, they have been indecisive, but, they were in a declining trend this week. With the new intraday all-time highs, that set up negative divergences.
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 rose today, but like the STOs above, they spent the week setting up a declining trend. Negative divergences are visible with the ITVM and %PMO BUY signals.
CONCLUSION: While the market took the talk of tax hikes well, we think it was a case of "its scary, but it ain't happened yet." Nevertheless, if the tax hike becomes reality, it means that trillions in capital gains will be taxed double what they are now. If the tax hike passes without retroactive feature, major selling will take place. As Gary Kaltbaum, president of Kaltbaum Capital Management, said on Friday, "That's one big matzaball." We shall see.
The market moved mostly sideways this week, but we did see a new intraday all-time high. While that sounds positive, it set up short-term negative divergences. The PMO topped this week. Participation is still questionable with only 56% of SPX stocks showing rising momentum. We're hitting all-time highs, folks. We should be seeing the indicators "confirming" this and they are not. Stay cautious into next week and as mentioned in the DP Alert yesterday, consider selling into strength or at least tightening up your stops.
Note: Next Wednesday the Fed will offer comments regarding Tuesday's meeting. There is no reason to believe that they will change their stance, but sometimes innocuous remarks can blow things up. We don't expect anything untoward, but be aware of this pending event.
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The correction has begun on Bitcoin and it doesn't appear it is over. We are seeing price currently holding at the March low, but given the declining PMO and negative RSI $42,500 seems a more likely reversal point than here.
Longer-term interest rates have been falling since the March top. Notice how the up trend kept accelerating, becoming parabolic. This kind of action always increases the likelihood of some kind of correction.
MORTGAGE INTEREST RATES (30-Yr)
We want to watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. (See table.) As mortgages are forced to shrink, real estate prices will have to fall, and many sellers will increasingly find that they are upside down with their mortgage.
From this year's high of 3.18%, the rate has dropped three weeks in a row and is now 2.97%.
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 decline and it likely will continue next week. Today the 20-EMA narrowly avoided a negative crossover the 50-EMA. We should see that crossover Monday. The only way for it to avoid it is to climb above the 50-EMA which is highly unlikely. The PMO has dropped below the zero line and the RSI is negative and not oversold.
The double-bottom concluded before reaching its minimum upside target. That was a hint that a correction was ahead.
UUP Weekly Chart: The weekly chart tells us that $24 is the strongest available support. The weekly PMO has begun to top and the weekly RSI is negative. $24 seems a reasonable target.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: SELL as of 3/4/2021
GOLD Daily Chart: Given the somewhat swift demise of the Dollar, we would expect Gold to be rallying strongly. While it is rallying, it appears a bearish rising wedge is developing. So far support is holding at the November low.
The double-bottom pattern tells us to expect a move up to about $1875, however, Gold still needs to overcome resistance at the 200-EMA. Given the positive PMO and RSI, we are optimistic it will succeed.
GOLD Weekly Chart: The weekly RSI isn't positive yet and it appears to be avoiding net neutral (50). On the other hand, the weekly PMO is bottoming. Price 'should' continue up to the top of the declining trend channel. Notice that investors are becoming less bearish on Gold and that could work in its favor.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners still an industry group that should see higher prices given the technicals. In particular we like the rising SCI and GCI. There was some damage to participation, but that relieves overbought conditions. We remain bullish on Gold Miners.
Full disclosure: Carl owns GDX, Erin owns GDXJ
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Oil is clinging to support at the 20-EMA. The PMO SELL signal is still intact, but the RSI is beginning to rise without needing a trip down to oversold territory. If the climate change discussion heats up (no pun intended), fossil fuels will benefit. Scarcity, even perceived scarcity, equals higher prices.
Support is holding with price staying above the previous trading range.
USO/$WTIC Weekly Chart: The weekly PMO is beginning to accelerate higher. Given we've seen a PMO reading of -30, an 8.24 PMO on the positive side isn't really overbought. The 17-week EMA just crossed above the 43-week EMA which suggests this congestion should resolve to the upside.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Given the PMO is rising, the RSI is positive, and long-term yields are in a declining trend, we would expect to see TLT continue higher.
Currently it is struggling to overcome resistance at the 50-EMA.
TLT Weekly Chart: The weekly chart is getting bullish with the bounce on strong support and a weekly PMO that is turning up. While the RSI is negative, it is rising out of very oversold territory which is bullish.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & Erin Swenlin
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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