Today the S&P600 triggered a new Price Momentum Oscillator (PMO) crossover BUY signal. While that is bullish, there are problems on this chart. You'll notice first off that while the SPX made new all-time highs today, the SP600 isn't close to making all-time highs.
Given the increase in volume, price should've found its way back up to all-time highs. This is called a "reverse divergence". Notice that the OBV reading at the all-time high was below today's reading. When price breaks out, you need to see the OBV do the same.
One more issue would be the bearish rising wedge formation. That chart pattern implies a downside resolution. So while we may have a positive RSI and new PMO BUY signal, there are problems.
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: New all-time highs were logged today. Now we want to see if our indicators have made higher highs to confirm this. The OBV has done this, but the PMO is on a SELL signal. The RSI remains positive and is confirming.
There was a decrease in Total Volume. We would expect to see elevated volume on new all-time highs.
SPY Weekly Chart: The SPY continues to hold a rather steep rising trend on the weekly chart. The weekly PMO is very overbought and the weekly RSI is also in overbought territory.
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 GCI remained at the same overbought reading all week. The SCI began to drift lower and finished the week below its signal line. We did see the reading tick up slightly today, but there is a clear negative divergence brewing. The BPI also ticked higher today, but remains beneath its signal line as well.
While participation expanded on today's new all-time high, the increase was not enough to avoid a negative divergence.
Climax Analysis: Given the pop in New Highs and the elevated Net A-D readings, this is likely an upside exhaustion climax. Yesterday looked like a weak upside exhaustion climax, but today's is more robust. The VIX reading fell significantly today which put it near the upper Bollinger Band on our inverted scale. While it is an overbought reading, it failed to penetrate the upper Bollinger Band. Even so, this is more evidence of a possible buying exhaustion.
NYSE Up/Down and Down/Up volume ratios are also climax detectors. The 9:1 ratio suggested by the late Dr. Martin Zweig in his book, Winning on Wall Street, is especially significant, but we also look for spikes outside the normal range to clarify a particular event. We have an NYSE and S&P 500 version of the ratios, and normally they will only be published when there is a notable reading.
Today's elevated readings confirm other climax indications.
The S&P 500 version can get different results than the NYSE version because: (a) there are only 500 stocks versus a few thousand; and (b) those 500 stocks are all large-cap stocks that tend to move with more uniformity.
Similarly, we have a strong upside reading on the SPY volume ratios.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs popped higher today. This put them squarely in overbought territory. So while it is positive to see the STOs rising, they moved overbought quite quickly.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT. The market bias is BULLISH.
The ITBM and ITVM also moved quickly into overbought territory on today's rally to all-time highs. The %Stocks with PMO BUY signals is steady at around 50%. New all-time highs were hit, but only half of the SPX has momentum buy signals. While it leaves for improvement, we are more concerned that too few stocks are holding up the market.
CONCLUSION: After declining on Tuesday, the market recovered and finished the week on new all-time highs. With today's intense buying, an upside exhaustion climax has set up. Additionally, most of our indicators are overbought or are sporting negative divergences. This buying exhaustion will likely resolve with lower prices next week. The depth of the decline isn't clear, so continue to protect your portfolio through hedging or hard stops.
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Bitcoin is now consolidating on top of the 20/50-EMAs. The positive RSI and rising PMO, Bitcoin should continue to consolidate or possibly rally next week.
Long-term yields hit support at the April lows and are rallying back up.
The 10-year Treasury Yield dropped significantly today but managed to close above the 50-EMA. Overall there is a declining trend, but now the yield has bounced off the bottom of the trend channel and is likely headed higher to test the top of the channel.
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.
The pullback of the last few weeks keeps this issue at a minor level.
IT Trend Model: SELL as of 4/26/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar crashed lower this week and is now attempting to hold onto the gentle rising trend. We aren't optimistic given the negative RSI and PMO top below both its signal line and the zero line. UUP also experienced high volume on today's selling.
$24.40 didn't hold up as support. The next level of support lies around $24.10.
UUP Weekly Chart: Longer-term support lies at $24.00 for UUP. However, we have the weekly RSI in negative territory below net neutral (50) and a PMO top beneath the zero line. Support at $24 isn't likely to hold.
IT Trend Model: BUY as of 5/3/2021
LT Trend Model: SELL as of 3/4/2021
GOLD Daily Chart: In response to a falling Dollar, Gold rallied strongly to finish the week. A new IT Trend Model "Silver Cross" BUY signal was generated on Gold this week. We now have a rising trend channel. The RSI is positive and we have a PMO bottom above the signal line which is especially bullish. We also have increased volume.
Overhead resistance is nearing at $1875.
GOLD Weekly Chart: The weekly chart is intriguing as price did manage to close just outside the declining trend channel. There is a long flag pole and this declining trend channel has formed the flag. A breakout here would imply plenty of upside. The RSI just entered positive territory and the weekly PMO has bottomed. A test of all-time highs isn't out of the question.
GOLD MINERS Golden and Silver Cross Indexes: A strong rally in Gold spurred Gold Miners higher this week. While this rising trend channel isn't "official" (there is only one touch of the top trendline, it does give us a possible upside target. The RSI is positive and the indicators 'under the hood' are healthy, albeit overbought.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: After breaking out above the March high USO began to pullback slightly. The 20-EMA has held as support and given the positive RSI and rising PMO, it should continue to hold.
Price seems ready to test the bottom of the current rising trend channel.
USO/$WTIC Weekly Chart: The weekly PMO had begun to top, but it is beginning to rise once again. There is a positive 17/43-week EMA crossover and the weekly RSI is positive. Crude oil should continue to rally. Gas prices are already on the rise. California is already up to $4.43/gallon or more.
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: TLT has been bounded by the 20/50-EMAs this week. While we do have a rising PMO and positive RSI, given yields are bouncing off support, TLT won't likely breakout.
If anything, it looks like a bearish double-top is forming.
TLT Weekly Chart: The weekly chart is more encouraging, but the RSI is still negative and the PMO hasn't actually turned up.
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.
Helpful DecisionPoint Links:
DecisionPoint Alert Chart List
DecisionPoint Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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