The Swenlin Trading Oscillators (STOs) were quite prescient this week. Looking at the 10-minute candlestick chart of the SPX, we can observe that overall, the market is on a nice rising trend, with a hiccup on Wednesday. Interestingly, the STOs came through and alerted us on Tuesday there could be trouble ahead as both the STO-B and STO-V topped. However, on Wednesday with the market falling, they turned back up to put us in a bullish stance going into the end of the week.
On the 10-minute candlestick we see that the 10-minute PMO is hanging onto a BUY signal and the RSI moved out of overbought territory which bodes well for a possible continuation of the short-term rising trend.
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: Options expiration was this week, and volatility toward the end of the week was low, as expected. We've reannotated the rising trend line. We are currently in an accelerated rising trend. The PMO is continuing higher, but it is now hitting overbought territory. Typically the PMO on the broad market indexes travels between -2 and +2. It has hit 2.02. At this point the OBV is confirming this rising trend.
On the 1-year chart price is bumping up against the rising trend channel. It can continue higher and hug the top of this channel without a breakout. Of concern moving into next week is the very overbought RSI. Granted overbought conditions can persist, but this condition is getting long in the tooth.
SPY Weekly Chart: It is very clear on the weekly chart that price is very extended. We've now retraced the bear market decline and have moved well past that for a nearly 93% upside move from the bear market low. The weekly RSI has now become overbought, but the weekly PMO switched out of a SELL signal and back into a BUY. We can see that overbought conditions on the weekly chart tend to stick around.
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 sputtered this week on the small decline, but they are now headed higher alongside the SCI and GCI. The BPI is overbought, but we have seen higher readings. The SCI and GCI, however, are extremely overbought. The GCI continued to make historic all-time highs based on data going back to 2017. Given they are still rising, they continue to confirm this steep rising trend.
Participation flattened as far as stocks above their 20/50/200-EMAs. The readings are overbought but their continued rise is confirming this rally.
Climax Analysis: We had somewhat climactic readings this week. Today New Highs spiked. Unfortunately in the short term, these spikes in New Highs usually mark a buying exhaustion. Net A-D was technically not in the climax zone, but elevated readings alongside a spike in New Highs does suggest a near-term pullback ahead. The VIX penetrated the upper Bollinger Band on Wednesday signaling a possible decline that never materialized.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL to OVERBOUGHT.
STOs are continuing to rise. The STO-B is somewhat overbought and the STO-V is in neutral territory. The market is extended, but these indicators suggest we could still eke out a few more all-time highs. You'll notice that on Tuesday both STOs tipped over signaling a near-term decline which happened on Wednesday. After that they turned back up in time to catch the end of week rally on Thursday and Friday. Negative divergences are visible. It is encouraging to see more stocks with rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
These indicators tipped over on Wednesday, but resumed their rise to finish the week. The ITBM is overbought but there is room for it to move higher. It surprising with a strong rally that we haven't seen much improvement on %PMO Crossover BUY signals. This could be a signal of trouble ahead, but so far it hasn't been much of a problem. We do have negative divergences on the ITVM and %PMO BUY signals.
CONCLUSION: The market is overbought and overheating. The climactic readings on New Highs and Net A-D are signaling a possible buying exhaustion. However, our market indicators aren't detecting an upcoming correction or even pullback as they continue to rise. Negative divergences are still persisting which does suggest cautionary measures. We expect to see an exhaustion of this steep rising trend, but given indicators are still bullish, we're not looking for a deep decline...yet. Should our indicators turn over next week, be prepared to reduce your market exposure or begin hedging. That will signal trouble.
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Bitcoin rallied to begin the week but price was unable to reach the top of the bearish rising wedge. This suggests we will see a breakdown from the wedge. The PMO has flattened and will likely lose its crossover BUY signal.
Long rates began topping in March. After some sideways action, they finally broke down this week.
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.
This week the 30-Year Mortgage Rate dropped from 3.13 to 3.04. As a practical matter the rate increase from January is not yet significant enough that the average buyer would be seriously deterred.
IT Trend Model: BUY as of 3/5/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar continued to breakdown this week. Given the negative RSI and falling PMO, we don't expect support at the mid-March lows to hold.
A breakdown below strong support at the busted double-bottom's confirmation line and 50-EMA also suggest lower prices will continue.
UUP Weekly Chart: Damage is being done on the weekly chart as the weekly PMO has slowed and the weekly RSI has moved into negative territory below net neutral (50).
IT Trend Model: NEUTRAL as of 1/13/2021
LT Trend Model: SELL as of 3/4/2021
GOLD Daily Chart: Gold has reaped the benefits of a falling Dollar. After starting the week with a break below the 20-EMA, price rebounded and has now broken above what was strong overhead resistance at the 50-EMA and November low. The next area of overhead resistance lie at the 200-EMA around $168 for GLD.
Today's breakout above both the 50-EMA and November low suggests the now messy double-bottom pattern has executed. The minimum upside target is right at overhead resistance at $1875. Discounts on PHYS are retreating suggesting investors are getting slightly more bullish on Gold.
GOLD Weekly Chart: The large bullish falling wedge tells us to expect and upside resolution. The weekly PMO is finally bottoming and the weekly RSI is headed for positive territory. The 17/43-week EMAs will have to be vaulted in order to execute this chart pattern, but given the bullishness of the daily chart and indicators, we suspect the breakout to occur soon.
GOLD MINERS Golden and Silver Cross Indexes: The rally in Gold improved the outlook for Gold Miners. Last week they broke out from the bullish falling wedge. After struggling to overcome resistance at the 200-EMA, price rallied strongly. Yesterday, GDX saw a "silver cross" of the 20/50-EMAs which triggered an IT Trend Model Silver Cross BUY signal. Both the RSI and PMO are rising and neither is overbought. Participation continues to improve. This is an industry group to watch next week.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Price broke out from a bullish ascending triangle this week. Today price consolidated the rally. The PMO generated a new PMO BUY signal today and the RSI is positive.
What looked like a bearish head and shoulder pattern never materialized. Instead this strong breakout occurred. Bullish resolutions to bearish chart patterns can be considered especially bullish.
USO/$WTIC Weekly Chart: The 17-week EMA should have a positive crossover the 43-week EMA. The weekly PMO has picked up speed and the weekly RSI is positive. We have bull flags on the weekly chart and this week's rallies have executed them.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: With Treasury Yields breaking down this week, TLT finally broke out. After reaching the 50-EMA price sputtered but remains above short-term support.
The RSI is positive and the rising PMO continues to signal higher prices for Bonds.
TLT Weekly Chart: We have a possible "V" Bottom chart pattern developing. It's very earlier in this move. The pattern will be confirmed when it retraces 1/3 of the correction, so we need to wait for a rally to test the early 2021 top. The weekly PMO is beginning to bottom and the weekly RSI is rising out of oversold territory which has us bullish on long bonds.
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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