The market once again hit new all-time highs, proving that the "cat" isn't quite dead (referring to a possible "dead cat bounce" last week). I'll discuss today's PMO BUY signal on the SPX later in the report, but let's take a look at the Nasdaq 100 ($NDX) chart.
As you can see, the PMO had a positive crossover its signal line to generate today's BUY signal. Price broke out to new all-time highs on Friday and it appears that it is headed higher given support is holding above the previous July top. The OBV is breaking higher to confirm the breakout. Relative performance shows that the tech-heavy NDX has been slowly, but surely, outperforming the SPX.
Let's take a peek at the NDX Golden/Silver Cross Indexes. All of the indicators moved higher today, but all three carry negative divergences based on today's new all-time high. These divergences suggest some problems ahead. However, the bias is currently somewhat bullish in the short and intermediate terms. We have a silver cross index reading of 73%. In the short term, there are 77% of stocks with price above their 20-EMA which is higher than the SCI. Additionally, 76% have price above their 50-EMAs which is higher than the SCI. The margin between the SCI and %stocks indicators is still very thin, so while the bias is bullish, it isn't exceedingly so.
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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.
RRG® Chart: XLV is attempting to reenter the Leading quadrant and XLK is beginning to do the same. XLC may be in the Lagging quadrant, but it is going to hit Improving very soon.
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: Price continues to rise but hasn't managed to break above the top of the bearish rising wedge. As noted earlier, the PMO has triggered a crossover BUY signal. The OBV avoided a negative divergence at the all-time high because it has reached past its prior highs.
The rising wedge is easier to see on the 1-year daily chart. The RSI is positive and not yet overbought. Total volume continues to contract as price rallies.
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 and GCI are rising but haven't quite crossed over their signal lines.
We are seeing better participation numbers. They are rising out of oversold territory and are not really overbought. If you compare near-term tops, these could actually be considered somewhat overbought even though we only have 2/3rds or less participation in the rally out of last Monday's low. There are still negative divergences, but they could begin to clear soon.
Climax Analysis: No climax today. However, the VIX remained beneath its EMA on the inverted scale. This implies internal weakness, so we could see some churn ahead.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
While I like seeing very positive readings on the STOs, I note that they are already overbought. Almost three quarters of the SPX have rising momentum. This reading is also getting overbought quickly, but this is the kind of participation we should see when new all-time highs are set.
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.
The bias in both the short and intermediate terms is bullish as both %Stocks > 20/50-EMAs is higher than the SCI. The SCI is rising out of oversold territory which is also positive.
CONCLUSION: I cannot argue with positive indicators and a new PMO BUY signal. This could be our opportunity to pare back exposure on strength. Seeing the NDX outperforming the market tells me there are pockets of strength available. However, I'm still bothered by the negative divergences. This is keeping me somewhat cautious and at only 40% exposure right now to the market. That exposure is primarily in defensive areas of the market. I'm keeping my stops in play and cutting losers or those underperforming the market right now given there is a bullish bias.
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Bitcoin has been rallying strongly. Price nearly tested the top of the trading range. The RSI is positive and 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.
Longer-term rates are continuing in their declining trend.
10-YEAR T-BOND YIELD
The declining trend is still a problem for $TNX. 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.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar is holding above the 20-EMA and the RSI is still positive. However, there are bearish characteristics.
There is a bearish rising wedge that is ready to execute as price continues to flirt with a breakdown. The PMO is about to trigger an overbought SELL signal. While I like the large bullish double-bottom on this chart, the weakness in momentum and the rising wedge tell me the pattern may disintegrate before price even hits the confirmation line at the March high.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: BUY as of 5/21/2021
GLD Daily Chart: With the Dollar ready for a possible breakdown, Gold could see a rally. 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. This should be a sturdy support level and any failure of the Dollar would imply a possible bounce ahead.
GOLD Daily Chart: Discounts are still relatively high suggesting traders are still bearish on Gold. I'd like to see deeper discounts as that would tell me Gold has a better chance of rallying. For now, the RSI is negative and the PMO is topping below the zero line. I wouldn't be looking to buy here until those indicators begin to reverse.
GOLD MINERS Golden and Silver Cross Indexes: 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 has been rallying alongside the SPX. It appears the rally is decelerating somewhat.
The PMO is bottoming and the RSI is now positive which bodes well for higher prices.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: TLT is riding a short-term rising trend. The intermediate-term rising trend is also safe.
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.
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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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