All of our monthly charts went "final" after trading yesterday, so as part of today's Weekly Wrap, we'll be looking at all of them.
Before getting to that, we wanted to let you know that the NDX moved to an IT Trend Model "Silver Cross" BUY signal as the 20-EMA crossed above the 50-EMA. This took out the previous 3/24 Neutral signal. With the EMAs "braiding", we should take all EMA crossovers with a grain of salt. However, today's breakout from the symmetrical triangle looks convincing. The PMO just triggered a BUY signal yesterday and we now have a positive RSI as it has crossed above net neutral (50).
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
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 broke above the bearish ascending wedge to set new all-time highs. This cleared the short-term negative divergence on the OBV from the last market top to now. However, the negative divergence is still in play from the last cardinal top to today's new all-time highs. The VIX has now reached readings not seen since before the bear market. Additionally, it very nearly punctured the upper Bollinger Band on the inverted log scale. That typically leads to a pullback.
The RSI remains positive and the PMO continues higher on its recent crossover BUY signal. Total volume was very light, but that can be chalked up to the holiday weekend ahead.
SPY Weekly Chart: The original bearish broadening top has been cleared, but we could consider another rising trendline as the top of a newer megaphone pattern. Ultimately this chart shows us how overbought the market is. The weekly PMO is still on a crossover BUY signal, but that could be in danger next week if the rally doesn't see strong follow-through.
SPY Monthly Chart: The monthly chart isn't revealing anything new except to say that the monthly PMO continues to rise, but is very overbought.
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 growing on this rally. The BPI and SCI have seen higher readings, but they are in near-term overbought territory. The GCI continues to hit all-time highs based on our data that began in 2017. Best news is that we do not see any negative divergences.
The rally is currently support in all timeframes with more participation coming in this week. All of these readings are overbought, but they are particularly overbought in the long term with over 96% of SPX stocks holding price support above the 200-EMA.
Climax Analysis: We did not see a climax this week. Readings were elevated today, but not in the climax zone. New Highs pared back slightly. As noted earlier, the VIX is the problem as it is very close to giving us a bearish short-term signal on a breach of the upper Bollinger Band.
Short-Term Market Indicators: The short-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT.
These indicators have supported this rally by rising, but today the STO-B ticked slightly lower. The STO-V continues to rise. %Stocks > 20-EMA are now quite overbought, but no negative divergence. %Stocks with PMOs Rising is not overbought and it is positive to see momentum gaining within the SPX.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
We've added the thumbnail so you can see that the ITVM has finally turned up and the ITBM turned back up. The ITBM is overbought, the ITVM is mostly neutral and carries a negative divergence. There is now a positive crossover on the %PMO crossover BUY signals. It is also neutral, but we can see the negative divergence.
CONCLUSION: Some of the negative divergences are clearing on the market's move to new all-time highs this week. Participation is supporting this breakout, albeit overbought in some cases. The mixed messages on the STOs (one rising, one falling) and the very overbought VIX suggest short-term churn ahead. Aggregate PMO indicators show 40% of the SPX is not participating yet in this rally, but those numbers are improving. If those stocks begin to participate, this rally could have more staying power than we originally thought. Overbought indicators are still a problem, but they can certainly move higher. Hence next week the market should continue higher or at worst see some churn and consolidation.
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Bitcoin is headed for all-time highs. The RSI and bottoming PMO suggest the top of the bearish rising wedge will be tested.
Longer-term interest rates have been rising since the August low. After a brief pause, to set a less accelerated rising trend line, new one-year highs were made again this week. We expect that the Fed will take some action soon to stop the rate rise.
MORTGAGE INTEREST RATES (30-Yr)
With long-term interest rates on the rise, we want to watch the 30-Year Fixed Mortgage Interest Rate. 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. A Coldwell Banker survey found that one in five homeowners are planning to sell this year, and increased supply will tend to depress real estate prices as well.
IT Trend Model: BUY as of 3/5/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar rallied above the 200-EMA and the bearish rising wedge. Since then it has retreated back inside the wedge. The RSI and PMO are positively configured, but it appears a test of the rising bottoms trendline is ahead.
The large double-bottom on the one-year chart suggests the Dollar will move higher in the intermediate term. The upside target is around $25.30.
UUP Weekly Chart: The weekly chart also suggests higher prices as a bullish falling wedge pattern has resolved upward as expected. However, we note a bearish shooting star candle on the weekly chart.
UUP Monthly Chart: The monthly chart is getting more positive as the PMO has flattened.
However, looking at today's monthly chart (includes today's trading), we can see the monthly PMO is already trying to turn back down. Overall, our impression is that the Dollar is due for a pullback.
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: SELL as of 3/4/2021
GOLD Daily Chart: As the Dollar falters, Gold is rebounding. Price was held up by the 20-EMA today.
We now have a bullish double-bottom pattern on Gold. Additionally the PMO has turned up above its signal line. The RSI has just about entered positive territory. Discounts are moving toward extremes and that generally helps Gold as it suggests bearish sentiment among participants.
GOLD Weekly Chart: The weekly chart is dominated by a long-term bull flag, but let's focus on the bullish falling wedge. If Gold manages to hold current support at $1675, that would mean price didn't have to test the bottom of the wedge. Generally, that suggests a breakout ahead. However, let's not forget the still declining and now negative weekly PMO.
GOLD Monthly Chart: The monthly PMO has generated a crossover SELL signal. However, notice that the long-term correlation with the Dollar is very negative. That means they have their normal inverse relationship--Dollar rises, Gold falls or Dollar falls, Gold rises. The Dollar is looking negative right now on its monthly chart and that is positive for Gold.
GOLD MINERS Golden and Silver Cross Indexes: Miners appear ready to finally breakout. The indicators vastly improved this week and price did not have to test the bottom of the bullish falling wedge. The 50-EMA was a problem last time. If price can overcome that resistance, that would execute the wedge pattern and suggest much higher prices.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil didn't do much this week as it continues to consolidate sideways. The PMO is decelerating and the RSI is back in positive territory so we should see a breakout.
USO/$WTIC Weekly Chart: $WTIC hit overhead resistance and was turned away. USO turned lower as well. There are bull flags visible on both and the weekly PMO is rising, albeit overbought. This decline was quite constructive as it took the RSI out of overbought territory.
USO/$WTIC Monthly Chart: The breakout on the monthly chart for $WTIC as well as a strongly rising monthly PMO that is not overbought suggest higher prices ahead.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: TLT is struggling to overcome resistance at the 20-EMA. Despite a rising PMO on a BUY signal, we haven't seen much out of Bonds. Yields have put substantial pressure on Bond prices, but as noted earlier, the Fed will likely correct this.
This does look like a bottoming formation on the one-year daily chart. The RSI is nearing positive territory as well.
TLT Weekly Chart: The weekly PMO is starting to decelerate slightly in very oversold territory. Yields are up against resistance so this could end up being a bottom for Bonds.
TLT Monthly Chart: The monthly PMO is ugly as it triggered a crossover SELL signal earlier this year. However, we do note support at the 2016 high.
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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