As part of our "climax analysis", we use the VIX, Total Volume, Net Advances-Declines, Net A-D Volume and New Highs/New Lows. In addition, we use the NYSE Volume Ratio and SPX Volume Ratio. Before I talk about the ratio charts, here is a quick explanation that we include whenever we have climaxes on the volume ratios.
"NYSE Up/Down and Down/Up volume ratios are 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."
I will give you a "spoiler alert", our Short-Term Climax chart does not show outside climactic readings. However, it is clear that the volume ratios did see a climax today. This is coming after yesterday's "upside initiation climax". Therefore, we're reading these elevated Up/Down volume ratios as an "upside exhaustion climax". This looks a lot like the reading on June 24th, so we could see similar churn rather than a large decline. However, given the continued weakness in participation, we are certainly vulnerable to a sharp decline.
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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: No changes to report.
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 action was certainly encouraging today with the follow-through on yesterday's move that broke the short-term declining tops trendline and pushed price back above the 20-EMA. Total Volume was elevated, but has pulled back.
The RSI has now entered positive territory and the PMO is attempting to turn back up. While it is positive to see price bouncing of the intermediate-term rising bottoms trendline and 50-EMA, there is a large bearish falling wedge nestled in that IT rising trend channel.
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 and SCI were unchanged today. The BPI ticked up slightly. So think about this... the market was up 2.31% in two days, yet participation actually edged lower or remained steady. Mega-caps continue to steer the market while the others are languishing.
Right now we have about the same number of stocks with silver crosses as we do stocks above their 50-EMA. This gives us a "neutral" market bias. I do like seeing improvement on these percentages, but if we look at the past month, these readings are already getting overbought.
Climax Analysis: As I noted in the opening our climax chart shows elevated readings, but not outside range readings. The decline in Total Volume on today's rally suggests "exhaustion" to me. The decline of New Highs combined with the contraction of Net A-D numbers also has nuances of a buying exhaustion.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is SOMEWHAT OVERSOLD.
The STOs are rising. They left oversold territory on yesterday's rally, but still remain in negative territory. They are generally a good predictor of market direction, but given they have retreated from oversold territory and remain negative, a buying exhaustion still makes sense.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL. The market bias is SOMEWHAT OVERSOLD.
Today we finally saw these indicators tick upward. Not enough to get excited about, but seeing the ITVM moving up from oversold territory is encouraging for the intermediate term.
CONCLUSION: Today we had an upside exhaustion climax which tells us to expect lower prices over the next day or two. I would look for at best, churning sideways and at worst, a breakdown of the short- and intermediate-term rising bottoms trendlines. Price has managed to hold above the 50-EMA and above those rising trendlines. However, if we see those rising trends compromised, then a true sell-off could begin. I continue to limit my exposure and am currently 30% exposed to the market with the majority of my positions in defensive areas of the market with high yields.
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Bitcoin obstinately stayed above support and rallied strongly today. Price still hasn't closed above the 20-EMA and the RSI is negative. The PMO ticked up sharply on the rally, but is still below its signal line and the zero line. We also can see a bearish descending triangle.
Yields are rising again, but the declining trend has not yet been broken.
10-YEAR T-BOND YIELD
The 10-year yields rose sharply today to settle at 1.28%. While its made strides and got back above the February gap support/resistance level, the declining trend is still firmly in place and the RSI remains negative.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar pulled back today. We've annotated a bearish rising wedge. Price came very close to executing the pattern to the downside as expected. The PMO is looking more toppy. The RSI remains positive. It wouldn't surprise me to see a failed test of resistance at the March high. If it doesn't get up there to test it, that would be an especially bearish sign given yesterday's high never reached that level before turning back down.
Overhead resistance also happens to be the confirmation line for a longer-term bullish double-bottom. Failure here could nullify this bullish pattern altogether.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: BUY as of 5/21/2021
GLD Daily Chart: Of concern is seeing Gold down -0.37% on a day when the Dollar was down -0.24%. Given the correlation between these two is a nearly perfect reverse, this tells me we should've seen Gold move up at least +0.24%. It didn't and moved down lower than the Dollar did. Price has now resolved the rising wedge to the downside as expected.
The RSI is now moving lower in negative territory and the PMO is topping below the zero line. I would look for Gold to test $1750. If the Dollar proves strong enough to leap over the confirmation line of its double-bottom, that would put even more downside pressure on Gold.
Full Disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners were up again today but haven't made much progress as far as bouncing off support. The RSI is still negative and the SCI is at a puny 3.33%. Participation isn't showing much improvement. At least we are seeing very oversold readings in this industry group, it just needs time to percolate. However, given the bearishness of the Gold chart, they will have some headwinds to deal with.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: XLE was the winning sector today by a mile and part of the reason is Crude Oil rebounded strongly. The intermediate-term trend is still intact and the bounce off support is positive. However, the PMO has not yet turned up and the 20-EMA looms as overhead resistance.
The double-top executed and hit its minimum downside target on the big gap down. Price is recapturing the intermediate-term rising bottoms trendline. The PMO appears to be bottoming, but I won't trust this rally until we actually see the PMO bottom.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: The textbook was right about the bearish engulfing candlestick yesterday. Price fell sharply on TLT. The short-term rising trend stayed intact today which is positive, but it seems likely that the longer-term rising bottoms line and 200-EMA will soon be tested. The RSI is moving lower quickly and the PMO has topped.
While studying this one-year chart today I noticed that price turned back at resistance. This resistance line aligns with the November/December lows as well as gap resistance. We will know more tomorrow when we see if price can hold above the 20-EMA, but it looks like we just saw a reverse island which suggests lower not higher prices.
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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