Today the OEX generated a new weekly PMO crossover BUY signal. While this is bullish, there are a few bearish characteristics to this chart. First would be the bearish rising wedge formation and second would be the overbought RSI. This new signal tells us what we already know, mega-caps are leading this market higher. It is important to pay attention to those FAANG+ stocks that are driving the market higher. When they fail, the market will. Our indicators suggest it will not be pretty given the lack of participation. We will keep you apprised in the DecisionPoint Alert.
Even the OEX is seeing poor participation numbers. The BPI is falling despite new all-time highs. Also, when we see new all-time highs we should have better than 75% participation as far as prices > 20/50-EMAs. Negative divergences and overbought readings are still a problem.
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: After yesterday's decline, price rallied strongly. Yesterday was a downside exhaustion climax which suggested we would see higher prices over the next day or two. Well, it manifested in an over 1% rally today.
Seeing an intermediate-term rising trend channel is positive, but the inability of price to test the top of the channel suggests internal weakness. Note that the RSI is already about to hit overbought territory as well.
SPY Weekly Chart: The weekly chart is dominated by a bearish rising wedge. It is beginning to get stale as price has nearly reached the apex, but the conclusion is still the same overall. The weekly RSI is overbought and the weekly PMO is on a crossover SELL signal. As noted at the beginning of this report, the OEX did see a weekly PMO crossover BUY signal. The weekly PMO on the SPX has flattened, but hasn't turned the ship completely around yet.
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.
Given new all-time highs, it is concerning to see the SCI losing ground. The BPI was mostly unchanged, but the GCI did move slightly higher. The GCI is very overbought.
We did see improvement on participation, although negative divergences are still in play. At least we do know that of the 64% of stocks with silver crosses 63.4% and 63.8% have price above both their 20/50-EMAs. That will preserve their IT Trend Model Silver Cross BUY signals.
Climax Analysis: Today we had an upside initiation climax. New Highs popped, but mainly we saw very high readings on Net A-D and Net A-D Volume. The VIX is now above its EMA on the inverted scale which does suggest very short-term internal strength.
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 primarily 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.
Given Total Volume wasn't particularly climactic, we turn to the Volume Ratio charts to confirm today's climax. Both the NYSE and SPX Up/Down ratios are elevated which confirms this climax. Notice also that the readings are above 9.0 which Martin Zweig would've ranked as especially significant. Given these readings are coming off a very short-term declining trend, we consider it an initiation to higher prices.
The S&P 500 version can get different results than the NYSE version because: (a) there are only 500 stocks versus a few thousand; and (b) those 500 stocks are all large-cap stocks that tend to move with more uniformity.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
Given we didn't see improvement on the STOs, I don't think this is the beginning of a longer-term rally. Additionally, only 67% of the SPX have rising momentum on new all-time highs.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL. The market bias is NEUTRAL.
The ITBM/ITVM both ticked back up after declining on yesterday's selling exhaustion. They still do not look healthy, especially given only 42% of the SPX have PMO crossover BUY signals.
CONCLUSION: Mega-cap stocks are still keeping the market afloat as exemplified by the new OEX weekly PMO BUY signal. However, we know looking under the surface that there are problems with participation, particularly within the SPX. We did see a strong upside initiation climax or buying initiation. We expect to see some follow-through on today's rally next week, but keep your stops in play, it may turn out to be a blow off.
Calendar: Next week is options expiration. Expect low volatility toward the end of the week.
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Bitcoin continues to struggle against the 20-EMA. The RSI is negative as price remains in the lower half of its 14-day trading range. The PMO is on a BUY signal, but it is also below zero and appears to be topping already. We continue to look for a test of the 30,000 level.
Yields began to accelerate their decline this week, helping Bonds to breakout and continue to rally.
10-YEAR T-BOND YIELD
The 10-year yield did bounce off gap support and managed to climb back above the 200-EMA. John Murphy wrote that he believes yields could be ready to bottom. This is a good start, but with the negative RSI and declining PMO, it is important that it recaptures the long-term rising trend.
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.
With mortgage rates coming down, this issue is not at all compelling. As a result, we will discontinue this section until mortgage rates start trending upward again. This is not to say that buyers won't be squeezed in other ways -- rising real estate prices will have the same effect as rising rates.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The breakdown of the Dollar began yesterday. Currently it is holding above the 200-EMA, but the PMO has topped, suggesting price could fall further on UUP.
The bullish double-bottom is in jeopardy.
UUP Weekly Chart: The double-bottom looks better on the weekly chart and indicators are much more bullish as well. The weekly RSI is positive and the weekly PMO is continuing to rise with no damage done this week.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: BUYas of 5/21/2021
GOLD Daily Chart: Gold is trying to continue last week's rally, but the 50-EMA is holding price down. We are optimistic though.
The RSI is now in positive territory and the PMO is rising toward a crossover BUY signal.
GOLD Weekly Chart: On the weekly chart we see the failed breakout attempt. Price did rebound before testing the long-term rising trend which is bullish. This week's rally didn't get price out of the declining trend channel and the RSI is negative. The PMO is decelerating but remains on a crossover SELL signal.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners erased much of yesterday's deep 2.5%+ decline. This means that support held at the November low. The PMO is trying to turn up. While that is bullish, the RSI is still negative and we aren't seeing any improvement in participation. We are on bottom fishing alert for Gold Miners. We could see some very interesting opportunities from this industry group soon.
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 broke down this week resolving the bearish rising wedge to downside as expected. Price lost support briefly at the 20-EMA, but it is righting the ship. The RSI is positive.
We do need to be careful. While the PMO is improving, price could be forming a reverse island. So far it hasn't recaptured its short-term rising trend.
USO/$WTIC Weekly Chart: More than likely USO is struggling because $WTIC hit strong overhead resistance. The weekly RSI is overbought, but the weekly PMO continues to rise. Remember overbought conditions can persist in a strong bull market move.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: With the 20-year yield rebounding today, TLT failed to break above resistance. The pullback was constructive as it pulled the RSI out of overbought territory. The PMO still looks healthy and isn't overbought.
TLT Weekly Chart: The weekly chart is favorable, but we can see that this resistance zone is already posing a problem. While the weekly RSI and weekly PMO are rising and bullish, the failure to break above resistance is concerning. Indeed, price closed near the bottom of this week's OHLC bar.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & Erin Swenlin
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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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