We've been waiting and watching for a PMO crossover BUY signal on the SPY. Today it reluctantly agreed to cross above its signal line. This isn't much of a buy signal given the PMO barely drifted above it. However, it does give us a more bullish bias in the shorter term.
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: The market logged new all-time highs again today leaving us with a VIX reading that is the lowest we've seen since the beginning of the pandemic. Investors are exceedingly complacent. Still, the VIX has not punctured the upper Bollinger Band yet. A puncture is almost a sure sign of a pullback ahead.
The RSI remains positive and is drifting higher which is bullish. One concern is that Total Volume is contracting even as price makes new all-time highs.
SPY Weekly Chart: In this time frame we have a rising wedge, as well as a weekly PMO SELL signal. Obviously, the PMO signal is not always prescient, but it does demand our attention.
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.
All three indicators are in decline, with the SCI picking up downside momentum. The BPI had a negative crossover its signal line. Given we are reaching new all-time highs, these indicators remain very negative as they continue lower.
More negative divergences in participation, particularly in the short and intermediate terms.
Climax Analysis: There were no climax days this week. New Highs contracted on another rally day. The VIX as noted earlier is very overbought and nearing a puncture of the upper Bollinger Band. The Bands have begun to contract and squeeze. This is indicative of the consolidation process more than anything.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL to OVERSOLD.
Both STOs continued lower with the STO-V now reaching oversold territory. Negative divergences on this indicator usually point to a decline ahead.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL. The market bias is BULLISH.
Negative divergences are persisting in the intermediate term. The indicators are continuing lower even as price hits new all-time highs. We still have less than half of the SPX on PMO BUY signals.
CONCLUSION: The market has stalled. It has been behaving in a way that makes us think it is waiting for something, and we think the "something" is probably the comments on Wednesday following next week's FOMC Meeting. A rally is a distinct possibility for next week given that short-term indicators are getting oversold and FAANG+ stocks are showing rising momentum. However, the lack of participation and the negative divergences will eventually weigh too heavy, so we think that any rally will be very short-lived.
Calendar: Next week is quadruple-witching options expiration, and we should expect low volatility toward the end of the week. Also, because it is end-of-quarter expiration, Friday's volume will be very high, but do not confuse this volume spike with excess greed or fear.
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Bitcoin is in a bear market. The bearish reverse pennant is still an issue, and there is a potential downside to around 10,000; however, the support at around 30,000 marks the bottom of a -55% decline, frequently a sufficient loss to end a bear market.
Yields broke major support this week and while they did rebound today, it was too little, too late. FOMC comments could shake yields up next week, but right now they are bearishly configured.
10-YEAR T-BOND YIELD
Not only did the 10-year yield break major support, today we had an IT Trend Model Neutral signal develop when the 20-EMA crossed below the 50-EMA. The PMO also moved into negative territory this week. Support is at 14, but a trip to the 200-EMA is entirely possible.
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.
Rates have pulled back since the end of March, and are currently moving sideways. The "squeeze" for which we are monitoring is minor at this time
IT Trend Model: SELL as of 4/26/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: UUP has formed a cup-shaped bottom. It has yet to spend more than one day above the 20-EMA despite a positive PMO. Now it is testing resistance at the 50-EMA. The RSI has finally moved into positive territory so conditions are more favorable this time around for a rally continuation.
This bottom is sitting on very strong support, price just needs to get above the 50-EMA.
UUP Weekly Chart: The weekly PMO has avoided a negative crossover which improves the look of this chart greatly. The weekly RSI is still negative, but a rally here would begin to form a bullish double-bottom. The Dollar looks bullish going into next week.
IT Trend Model: BUY as of 5/3/2021
LT Trend Model: BUYas of 5/21/2021
GOLD Daily Chart: Gold is now clinging to support at the 20-EMA. The rally out of the March low in Gold needed to cool and that is exactly what is happening right now. The concern now becomes a rising Dollar. The PMO is still on a SELL signal and the RSI is sinking toward negative territory.
The overall rising trend is still intact. A break of the rising trend would mean serious consequences for Gold, but for now it is holding. Discounts did expand this week telling us that traders are getting bearish on Gold. Sentiment being contrarian, this could set up a nice opportunity for a rally, but the readings aren't really oversold enough yet.
GOLD Weekly Chart: Gold's rally has pushed it out of its declining trend channel. The channel can be considered a flag on a long flagpole. An extended rally should continue. The long flagpole tells us the rally could continue much higher than the all-time high for Gold. Rather than count on that, we also have confirmation from the weekly PMO that this breakout should see more follow-through in the intermediate term.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners began consolidating mid-May and have not done much. We had a gap down earlier this month and now price is consolidating once again. The good news is that the rising trend is intact. The bad news is that participation is waning and the RSI is about to cross into negative territory. Miners and even some Materials stocks are not the place to be right now. Sector rotation is showing the Materials sector topping.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil continued its rally. It has formed a tight rising trend channel. Yesterday's intraday low punctured it, but the close kept it within. Given the positive and not overbought RSI and the positive and not overbought PMO, we would expect Oil to continue higher.
Whenever we see a bullish conclusion to a bearish pattern, a rising wedge in this case, it is especially bullish.
USO/$WTIC Weekly Chart: $WTIC has overcome strong resistance. It will be tested very soon. At that point we could see the rally cool or consolidate.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Bonds broke out this week as yields broke down. TLT has been configured bullishly for some time but hasn't been able to sustain a rally. Given this week's IT Trend Model "Silver Cross" BUY signal and the now positive rising PMO, we should see price test the 200-EMA. The one detractor is the somewhat overbought RSI. However, the RSI is managing to avoid "shaded" overbought territory (RSI > 70) even as it rallies, so we're not particularly concerned about its reading yet.
TLT Weekly Chart: The TLT weekly chart is very bullish. Not only did TLT get an IT PMO BUY signal today, it also executed a double-bottom pattern. The rally this week took price above the 17-week EMA. The RSI is rising and should hit positive territory soon.
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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