Today the Materials sector (XLB) triggered a new PMO crossover BUY signal in oversold territory. The sector itself has been languishing, but it is starting to look interesting again. Price broke out of the bullish falling wedge as the pattern suggested it would. It isn't decisive (3%) by any means, but it is accompanied by a newly positive RSI, rising SCI and best, a positive divergence between price lows and OBV lows. Typically those divergences precede sustained rallies. I also see a bullish bias given 50% of stocks have price above their 20-EMAs. That is double the SCI reading of 25%. It isn't a perfect chart as price did not close above the 50-EMA and the BPI isn't responding to the rally out of the July trough. Still relative performance is beginning to move higher against the SPX.
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
SECTORS
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.
RRG® Chart: Big updates to the chart would include XLC moving from Lagging into Improving and XLU and XLP entering Leading today.
CLICK HERE for an animated version of the RRG chart.
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: Someone emailed me and asked why there was a PMO BUY signal on the NDX, but it tanked today. I explained that it isn't a predictor of price movement the next day and that we've had five days of rally, a pullback was due. The SPY is clinging to its new crossover BUY signal.
Price is dropping just as it touched the top of the bearish rising wedge. It is time for it to test the bottom of the wedge.
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 did gain a few percentage points today despite the decline which is somewhat positive. The GCI is still overbought.
Participation slumped somewhat keeping the negative divergences in play.
Climax Analysis: No climax today. Net A-D was practically unchanged. Of particular interest is the bump in Total Volume on today's selling and the VIX remaining under its EMA on the inverted scale. If we see a puncture of the lower Band, that might indicate a short-term upside reversal, but it hasn't, so we aren't expecting one.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
I noted yesterday that STO readings were already in overbought territory. That leaves us vulnerable in the short term to more decline. We still have about 2/3 of the index with rising momentum which is positive, but I would expect that to be much higher given the extend of this rally out of the May lows. The STOs are actually a fairly good predictor of next day direction for the market and given they are declining now out of overbought territory, we could be looking at follow-through on today's decline.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is SOMEWHAT OVERSOLD.
The IT indicators are all rising, but negative divergences still remain. We finally have more than half of the SPX on PMO BUY signals, but again, given we are at all-time highs, that number should be higher.
Bias Assessment:We've added this new section called "bias assessment". It occurred to me that one of the ways we can measure market bias is to compare the SCI to the percent of stocks above their 20/50-EMAs. When the percentages are lower than the SCI, the market bias is bearish and if they are higher, it is bullish. Any "mechanical" signal requires additional analysis to confirm the numbers.
We may see a bullish bias in the short and intermediate terms right now based solely on the numbers, but seeing these low readings near a market top not bottom is admittedly perplexing.
CONCLUSION: Right now, STOs turned down in overbought territory and price is pulling back from the top of a bearish rising wedge. Participation has turned up from oversold readings, but why are they even oversold at market highs? Mega-caps that have been holding the market aloft have reported and so far the numbers are mixed based on after hours trading. Here are some of the big ones: GOOGL is up +3.03% in after hours trading, AAPL -1.53%, MSFT +0.89% and Visa (V) -1.11%. I'm still 40% exposed to the market, but looking to divest further.
I'm reminded of the story I used to read to my children, "The Emperor Has No Clothes". Money continues to pour into the market mostly thanks to Fed liquidity measures. Add to that the Bitcoin, Meme stocks and app based trading and prices just continue to move higher. But looking more closely, we see lack of participation and negative divergences. When will everyone realize the emperor has no clothes? Who can tell. Maybe its on the FOMC comments tomorrow? Or digestion of earnings on the big names. Stay vigilant and cautious.
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BITCOIN
Price nearly tested the top of the trading range, but pulled back today. The RSI is positive, but is already getting overbought. The PMO is rising on a BUY signal suggesting price may finally breakout above 42,000. However, remember that the EMAs are configured very negatively right now, so we should temper our bullish expectations somewhat.
INTEREST RATES
Longer-term rates are continuing in their declining trend.
10-YEAR T-BOND YIELD
The ever steepening declining trend is still a problem for $TNX as price failed again to break out. There is currently a strong support zone between 1.1 and 1.3 and the PMO is making an attempt at a crossover BUY signal. However, the RSI has turned down in negative territory. I'm looking for a test of this month's low.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar triggered a PMO SELL signal in overbought territory today. The RSI has been falling and price was already toying with a breakdown from the bearish rising wedge. The breakdown finally happened, but price is holding on the 20-EMA.
I continue to watch the large bullish double-bottom on the one-year daily chart. It is beginning to breakdown even before a test of the confirmation line at the March top. I will give up on that pattern if price loses the 50-EMA.
GOLD
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: BUY as of 5/21/2021
GLD Daily Chart: GLD was up about as much as the Dollar was down. No headway was made on this gain. Price is currently holding above short-term support and intermediate-term support. This support line aligns with the early February low, the April top, the late June highs and the early July lows. It has been sturdy, but we really need to see more out of gold prices.
GOLD Daily Chart: The RSI is negative and falling. The PMO should trigger a crossover SELL signal tomorrow. This is Gold's time to shine given the Dollar is breaking down. I'll start getting bullish if we finally see a breakout above key moving averages.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Gold Miners are stuck in a holding pattern. The good news they are holding support so this could be a good area to see a strong reversal to the upside. However, participation isn't really improving. We need to see a rising SCI and percentages in %stocks > 20/50-EMA expand past the SCI percentage."
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 is acting toppy, but is managing to stay above support at the 20-EMA. The RSI and PMO are both mostly neutral. Given the rise in the OBV, we should've seen more rally.
Given we haven't, I suspect prices will churn away along the rising bottoms trendline drawn from the October low.
BONDS (TLT)
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: Yesterday's comments still apply.
"TLT is riding a short-term rising trend. The intermediate-term rising trend is also safe." [A PMO SELL signal could appear tomorrow.]
"The RSI is still positive, but the PMO appears to be topping again in somewhat overbought territory. Yields are in a downtrend and while they rebounded somewhat, I'm not expecting that declining trend to be broken near term. TLT would be a hold candidate, but not a buy until we see a decisive breakout above resistance."
Technical Analysis is a windsock, not a crystal ball.
--Erin Swenlin
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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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