Further evidence of narrowing participation can be seen by comparing the equal-weighted (RSP) and cap-weighted (SPY) versions of the S&P 500 Index. Since the July 2020 low, RSP has out-performed SPY by +35%, but since the May low, SPY has out-performed RSP by +33%. This is quite an amazing shift, and it emphasizes how the large-cap stocks are carrying the index, and the smaller-cap stocks are taking a break.
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 gapped up today, increasing the steepness of the short-term trend. The steeper the rising trend, the more difficult it is to maintain.
Given the big rally to new all-time highs, we would expect high volume, but instead it contracted quite a bit. We can't read too much into this given we are starting a holiday weekend. The RSI is now in overbought territory, typically a place the market pulls back.
SPY Weekly Chart: The rising trend was nearly compromised last week, but with a small shift in the annotation, we are using that low to mark the current trend. There is a bearish long-term rising wedge, but so far price is holding within it. The weekly RSI is now overbought as well. The weekly PMO is on a crossover SELL signal in overbought territory, but it is decelerating and could turn up if the market continues higher.
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 held steady, but the BPI turned down and had a negative crossover. The GCI moved lower this week. Considering we are popping to new all-time highs on a rising trend that is increasing in steepness, these readings tell us to expect a decline, not higher prices.
Our lead in chart discussed participation problems. This chart also illustrates this. New all-time highs were reached yet we didn't see any improvement on participation as readings were mostly unchanged today. The deep negative divergences are the biggest concern.
Climax Analysis: No climax today, but it does seem that yesterday's exhaustion climax is being carried another day. The VIX penetrated the upper Bollinger Band and that almost always leads to a price decline in the very short term.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
This is the 'warning' chart. STOs turned down today despite the rally pop. There wasn't any real improvement on %Stocks with rising momentum. Again, something you wouldn't expect to see on a big rally day.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL. The market bias is SOMEWHAT BULLISH.
Clearly there is a short-term bullish bias, but now that IT indicators are green again, the intermediate-term bias is getting bullish. The indicators themselves are in neutral territory. Rising indicators are good, but the negative divergence is still there. 42% of stocks are on BUY signals. Mega-cap stocks are clearly carrying the market higher. We should see much higher readings after such a lengthy rising trend.
CONCLUSION: The theme is the same. Negative divergences in all timeframes and narrowing participation. In the short-term beware of the upside exhaustion climax from yesterday, we expect a decline shortly. IT indicators are improving, but not enough to move bullish. Let's eke out whatever gains are left to be had, but protect ourselves from a likely short-term exhaustion with stops. The bigger they are, the harder they fall... Mega-cap stocks like AAPL, AMD, GOOGL, FB, MSFT, etc have bullish charts and continue to march higher. It is important to continue to take the temperature of these stocks (which we will for you!), because when they begin to fail, the weak foundation of few participating stocks will carry the market down in a hurry.
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Bitcoin continues to struggle. This week it tried in vain to break through and stay above the 20-EMA. The PMO had just switched to a BUY signal and it is topping already. The RSI was about to hit positive territory, but has now turned back down. Look for a test of 30,000 soon.
Long-term rates are now in a defined declining trend. This will move Bonds higher.
10-YEAR T-BOND YIELD
$TNX is traveling within two bullish falling wedges, but price is getting close to the apex and it hasn't broken out. The patterns are getting stale. Support is holding in the 14.0 to 14.5 range, but the declining trends are getting steeper suggesting a breakdown ahead.
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 are staying steady for now.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar finally pulled back after a week of strong rallies. The good news is that has taken the RSI out of overbought territory and the 200-EMA is so far holding as support. The bad news is the topping PMO.
There is a bull flag that has executed suggesting price will breakout above the March top.
UUP Weekly Chart: The March top is where we have a confirmation line to a large bullish double-bottom. Remarkably, the minimum upside target takes us to the 2016/2017 top.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: BUYas of 5/21/2021
GOLD Daily Chart: We can look at the candle cluster of the last three weeks a couple of ways: (1) It's an island with the potential for an upside reversal, or (2) it's a reverse flag which will result in another down leg.
The daily PMO is looking as if it may be ready to turn up, and we can see that price tried to break out of the reverse flag, but failed.
GOLD Weekly Chart: Today, the weekly PMO triggered a crossover SELL signal. The breakout from the long-term flag had looked promising, but price crashed and is now toying with support at mid-2020 tops. The long-term rising trend is about to be tested. Participants are not bearish enough based on the discount for PHYS to expect a reversal.
GOLD MINERS Golden and Silver Cross Indexes: Price is rebounding off support at the November low, but participation isn't really improving. It's ready for a reversal, but we need better participation numbers and a rising SCI/GCI.
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 continues to rally, but we may be looking at a bearish rising wedge. While USO could breakdown here, overall there is a bullish bias. Prices are rising as fossil fuels are seeing governmental pressure and policies that will likely keep oil prices rising for some time.
The RSI is overbought and that also suggests a pause or small breakdown.
USO/$WTIC Weekly Chart: $WTIC is hitting overhead resistance at the 2018 high, this could indicate an upcoming pullback or pause for USO. The weekly PMO is still rising strongly, but the weekly RSI is overbought.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: With long-term yields in a declining trend, TLT may finally breakout above the 200-EMA.
The indicators look good with a positive RSI and rising PMO.
TLT Weekly Chart: The weekly chart shows that price is hitting resistance at the 2019 high. The weekly PMO and weekly RSI still tell us to expect a breakout.
Technical Analysis is a windsock, not a crystal ball.
-- Carl and 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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