The market broke its short-term rising trend as investors reacted to news from the FOMC. Inflation concerns have given rise to possible rate hikes in 2023. While there was no indication that there would be tapering on bond purchases in the coming months, most experts believe with rate hikes on the table for 2023, it will be inevitably sooner than investors would like.
With today's more than half percent decline, the PMO switched gears and whipsawed back into a SELL signal. Price broke the rising trend and executed a short-term rising wedge. Total volume was higher on today's selling and the VIX plummeted on our inverted scale.
** UPCOMING VACATION - June 28th to July 9th **
It's that time of year again! Last year it was a road trip to Alabama and back, this year it is a road trip to Utah and back! We plan on dropping in Las Vegas, Zion, Spanish Fork, Bryce Canyon, back to the Grand Canyon, Bull Head City and finally back home.
I plan on writing, but all trading rooms will be postponed until I return home. Blog articles may be delayed depending on WIFI service and/or our travel for the day.
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.
Watch the latest episode of DecisionPoint on StockChartsTV.com and YouTube here!
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 RSI is still positive but dove lower on today's decline. Adding insult to injury, we now have a negative OBV divergence. With the VIX moving well below its EMA on the inverted scale, internal weakness is now showing itself in the very short term. Until the VIX punctures that lower Bollinger Band, expect lower prices to continue.
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 held steady for another day. The BPI and GCI continued lower. The negative divergences are playing out on this decline. With readings not oversold yet, we expect more selling ahead.
Participation is dropping quickly now. This isn't a bad thing. We want to see readings reach oversold territory. We won't likely see long-term indicator deterioration for a bit longer. The SPY is a great example of how high price and the 50-EMA are above the 200-EMA. Most stocks are the same, meaning it could take some time before long-term indicator readings begin to rapidly decline.
Climax Analysis: We did see a climactic reading on Net A-D with accompanying high total volume. Likely we are seeing a new selling initiation climax.
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.
However, we didn't really get confirmation of the climax on our volume ratios chart. I still view this as a likely initiation climax.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL to OVERSOLD.
The STO-V is rising which gives bulls hope that this isn't a selling initiation. However, the STO-B did turn lower today and isn't oversold yet. We have less than one quarter of the SPX stocks with PMOs rising. The reading is now beginning to get somewhat oversold, but there is still plenty of territory for these indicators to move even lower.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL. The market bias is BULLISH.
These indicators also are continuing to deteriorate suggesting this intermediate-term rising trend is about to be busted. Indicators are not oversold and can certainly support lower prices.
CONCLUSION: Somewhat unexpectedly, the Fed signaled possible rate hikes in 2023. While they still said that inflation is "transitory", they raised their expected inflation percentage to 3.4% from 2.4% in March. Not surprisingly investors didn't take the news well. The market was already showing internal deterioration with our many indicator negative divergences. Higher prices have been supported by a small percentage of large-cap stocks and they are showing weakness now. As I noted in yesterday's Diamonds Report, we have moved from a weather storm "watch" to a storm "warning". We've been watching the deterioration, but now we consider these indicators a clear "warning". Prepare for the inevitable storm by shoring up your portfolios, be it through rotation or tighter stops or moving to cash.
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Not surprisingly, Bitcoin failed to overcome resistance at the 200-EMA. While it is currently holding above the 20-EMA, the reverse flag formation suggests Bitcoin is in for another trip at least to support at 30,000. If this reverse flag executes with a drop below 30,000, the flag suggests we could see it move all the way down to 10,000. For now, the decline is likely to continue toward 30,000.
Yields rebounded strongly, with the 10-year yield breaking back above prior broken support.
10-YEAR T-BOND YIELD
$TNX soared higher today, pushing it above both the 20/50-EMAs. The intermediate-term rising trend is safe and this shorter-term rising trendline drawn from the December low held. The PMO is now turning up, suggesting yields will continue higher.
IT Trend Model: SELL as of 4/26/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar rallied strongly today, closing near today's high. This forceful break above the 50-EMA suggests the rally is on for UUP. The RSI is positive and not overbought and the PMO is rising on a BUY signal. However, don't be surprised if we see a pullback to digest today's rally.
The cup shaped bottom on long-term support at the January low could be the second bottom on a double-bottom pattern. This suggests we should at least see the confirmation line at $25.20 test, but I am not counting on that. Resistance at the 200-EMA could pose a problem.
IT Trend Model: BUY as of 5/3/2021
LT Trend Model: BUY as of 5/24/2021
GLD Daily Chart: Not surprisingly, Gold dove lower with the strong rally on the Dollar. Support is now nearing at the 200-EMA, but given the very negative RSI and PMO, as well as low discounts on PHYS, it isn't likely to hold.
(Full Disclosure: I own GLD)
There is a double-top formation. A drop below support here would execute the pattern. The minimum downside target is around $1775.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners also were hit. The 50-EMA support level disintegrated on today's decline. Participation continues to weaken. 200-EMA here we come!
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:
"Since the end of May, USO has been in a steady rising trend channel. Nothing on the charts tell me this won't continue...although the RSI is beginning to hit overbought territory." <Addition: today's candle is a shooting star which suggests lower prices tomorrow, but overall I'm still bullish on oil.>
IT Trend Model: NEUTRAL as of 8/27/2020
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Even with yields rebounding today, TLT was able to hold support. The long-term yields do appear to be recapturing prior support which means TLT likely will not be able to rally.
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.
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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