In Carl's ChartWatchers article on Saturday (5/22) he discussed the Long-Term Trend Model "Golden Cross" BUY signal that for all intents and purposes was a signal change. However, today the crossover is "official".
A Long-Term Trend Model BUY signal occurs when the 50-EMA crosses above the 200-EMA, a "Golden Cross". Given the strong rally out of the March lows, it isn't surprising the signal triggered. Remember, with exponential moving averages (EMAs), when price is above the EMA, the EMA will immediately rise toward price. The opposite is true when price crosses below an EMA.
I'll be talking about this gold chart further in the section on Gold.
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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.
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: Price rallied above the confirmation line on the short-term double-bottom pattern. The minimum upside target can be calculated by taking the height of the pattern and adding it to the confirmation line. That means that the upside target of this pattern is around $430-$432 which would take price to new all-time highs.
Volume contracted on the SPY and SPX. We don't want to see lower volume on rallies. The VIX moved above its EMA on the inverted scale which is generally a bullish signal, but we can see that last time the rally failed.
The PMO did turn up and the RSI has just entered positive territory. With today's breakout, there is a short-term negative divergence with price.
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 SCI turned up today and the BPI had a positive crossover its signal line. The GCI rose slightly. In all cases these indicators are overbought, but what's new? Overbought conditions can persist in a bull market move, but not forever.
Very nice improvement on %Stocks above 20-EMA. It's a good number and isn't overbought. Note there are currently no negative divergences with today's breakout. The biggest problem is overbought long-term %Stocks > 200-EMA.
Climax Analysis: No climax today. Notice there is a small negative divergence between New Highs and price on today's breakout.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
The STOs are rising in concert with price which is bullish. We're also seeing improvement on %Stocks with rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT. The market bias is BULLISH.
It's hard to make out, but the ITBM/ITVM rose slightly today. Overall these indicators are in a declining trend so I don't consider that a big positive.
CONCLUSION: As I told DP Trading Room attendees today, in the short term, the market is bullish with the double-bottom, rising PMO and now positive RSI. Seeing the indicator charts after the close, I don't like the negative divergences with the OBV and New Highs. IT indicators are overbought or in declining trends. Short-term, Technology is driving the market higher and given the bullish XLK chart, I expect that to continue this week. Take advantage of strength this week, but prepare for the likely reversal when all-time highs are exceeded.
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Bitcoin continues to dominate market news. The PMO is turning up and the RSI is rising out of oversold territory. However, price really hasn't broken from the steep declining trend and overhead resistance will be difficult to overcome as the 200-EMA aligns with the January top and another resistance area arrives at the April low. More than likely we will see price volley between $30,000 and $42,000. I wouldn't look for much more yet.
Yields held support and have bounced. The recent pullback/consolidation could be forming the handle on a bullish cup and handle pattern.
IT Trend Model: SELL as of 4/26/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: UUP is in a bullish falling wedge and we have a positive OBV divergence. The PMO and RSI are not yet on board for a rally.
If UUP is going to recover, it needs to do so now while it is on strong price support.
If this support level is lost, we don't see strong support again until the 2018 low. Given more spending coming down from Congress, we doubt this level will hold.
IT Trend Model: BUY as of 5/3/2021
LT Trend Model: BUY as of 5/24/2021
GLD Daily Chart: GLD also had a "Golden Cross" BUY signal. Working against GLD is the very overbought RSI and resistance being hit at the late January tops.
(Full Disclosure: I own GLD)
$Gold has already overcome overhead resistance at the late January tops, so we should see the same from GLD. $Gold has an overbought RSI, but the PMO is rising and isn't that overbought when compared to its August high. We do note that the rising trend is getting steeper. Steep trendlines don't generally hold up for very long.
GOLD MINERS Golden and Silver Cross Indexes: With Gold rallying, Miners have enjoyed their own rally. Price is staying above strong support (as noted by the various "touches" marked by blue arrows) and I expect it to continue to do so. Participation numbers are overbought, but the rising SCI, BPI and GCI suggest GDX will be able to rally higher. I didn't annotate it, but we also have a short-term symmetrical triangle. It is a continuation pattern which suggests an upside breakout.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO rallied strongly today and put price above the 20-EMA. The RSI is now positive and the PMO has turned up. Carl and I expect it to rise higher, but likely will be stopped by the top of the bearish rising wedge.
Part of the problem for USO is that Crude Oil ($WTIC) prices are stumbling at overhead resistance of the 2019 highs. We have more "touches" of this resistance line that strengthen it. The PMO is technically rising but the RSI is overbought. Until $WTIC breaks out, USO will continue to move sideways.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Yields are pulling back and that is putting the wind at TLT's back. The RSI is now positive and the PMO triggered a crossover BUY signal today. I have been watching a possible cup and handle on the Yields chart above, so this could be short-lived, especially given the 50-EMA has held as overhead resistance throughout this chart.
In fact, price hasn't been trading above the 50-EMA since the August top.
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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