During today's DecisionPoint Show on StockChartsTV, Carl and I discussed our concerns regarding the Silver Cross Index and particularly the Golden Cross Index for the major indexes.
Below is the Golden Cross Index chart of the SPX, Nasdaq and NYSE. We've kept you apprised of the very negative configuration of the GCI for the tech-heavy Nasdaq. The negative divergence on the GCI had been a large attention flag that the Nasdaq was in trouble. The NYSE GCI had been holding up, but it turned south after failing to hold above its signal line.
It wasn't until today that we finally saw deterioration on the SPX GCI. It had been holding at the highest reading recorded since we started the dataset that goes back to 2017. It was at a heady 97.40 for over a week. It has now turned lower, albeit by a 0.20 change. What we do know is that it is extraordinarily overbought and turning lower.
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.
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.
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 PMO triggered a crossover SELL signal a little over a week ago. It had flattened and appeared ready to move toward a new BUY signal, but today's decline thwarted it. We have a bearish engulfing candlestick that suggests more downside tomorrow.
The RSI is still positive, but we did see a higher reading on the VIX which suggests market participants are beginning to worry a little.
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 negative divergence on the SCI was already building before today's decline. Now we have the SCI and BPI topping below their signal lines. The turn on the GCI is particularly concerning as I mentioned in today's open.
Not surprisingly, participation waned on today's decline. Again, negative divergences had been in play before today's decline.
Climax Analysis: We saw a big expansion of New Highs today, but as Carl mentioned during today's show, this is the highest intraday reading for the day, not how many were at New Highs at the close. Given the lack of movement in advances minus declines, we both agreed that today was not a climax day.
The VIX is sitting above the lower Bollinger Band on the inverted scale. Since it did not penetrate the lower Band, I am looking for a continuation of today's decline.
Keep in mind: When the Bands squeeze it makes any penetration of the Bollinger Bands less useful since it is easy for them to punch through the upper Band one day and immediately puncture the bottom of the Band the next.
A Bollinger Band squeeze also signals that volatility is ahead. The Bands can't remain squeezed together forever and the only way to have them expand is on high volatility. I've never seen a VIX squeeze finish with a powerful thrust to the upside. High volatility is almost always bad.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
While STOs did technically rise somewhat, overall they are near-term overbought and that is what concerns me. We have about 60% of stocks in the SPX with rising momentum. That could support higher prices; however, that number is diminishing not increasing. Even as prices rose, we didn't see much increased participation.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
These indicators did rise again today. ITBM is very overbought. The ITVM isn't making much headway and has set up a negative divergence. Only about half of the stocks in the SPX are on PMO BUY signals. We should've seen a much higher number by now. Since we have not, there is yet another negative divergence.
CONCLUSION: On Thursday and Friday of last week, there was an upside exhaustion climax. That is playing out right now. Given the bearish engulfing candle, numerous negative divergences and the continued decline in participation (particularly on Stocks > 20/50/200-EMAs), I would look for lower prices this week. The big question on all of our minds is how far will the decline take us? At this point, there isn't enough information to make any sweeping conclusions, but as Carl said in today's DecisionPoint Show, it's likely time to "duck and cover".
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Bitcoin continues managed to finish above the 20/50-EMAs and we do have a rising PMO on a BUY signal. The RSI is still negative. The rising trend is in the process of being broken. Really it appears we have a new bearish rising wedge. So despite a positive PMO, there is a high likelihood there's going to be a breakdown here.
Yields held support and have bounced. Look for them to continue rising.
IT Trend Model: SELL as of 4/26/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar (UUP) broke the rising trend today. The PMO has topped below its signal line AND the zero line. The RSI is negative and not in oversold territory.
The next level of support doesn't arrive until $24.15 to $24.20.
IT Trend Model: BUY as of 5/3/2021
LT Trend Model: SELL as of 3/4/2021
GLD Daily Chart: The actually closed unchanged, so a 0.30% gain for gold is bullish and implies there are more buyers involved. The RSI is positive, although getting overbought. The PMO is rising strongly and based on its "normal" range of -2 to +2, is not overbought.
The next area of overhead resistance arrives at $1875.
GOLD MINERS Golden and Silver Cross Indexes: After the strong breakout last week, GDX consolidated. While I don't like to see price close in the bottom of the daily range, I think there are more bullish indications than bearish right now. The RSI is positive and not overbought. The PMO is rising on a new crossover BUY signal. Additionally, the SCI had a positive crossover its signal line. The BPI and GCI are both rising. The issue is participation--it is very overbought. However, if GDX continues to rally, we note that these overbought conditions can persist--look at last Summer.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO broke above the mid-April top and has since been consolidating above it. Given the PMO is rising and on a BUY signal and the RSI is positive, we do expect to see a rally out of this consolidation.
The rising trend channel is intact, but we could see USO test the 20-EMA and the bottom of the channel before it rallies higher.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: As noted earlier, yields are bouncing off support and that leaves TLT with nowhere to go but down. So many things are going wrong on this chart. The RSI just entered negative territory and the PMO has topped below the zero line. I also spotted a triple-top formation with the confirmation line at the April low.
If the triple-top resolves downward as expected, the minimum downside target would align with the March low.
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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