The SCI has never been this negative as the market makes new highs. I suppose that there is no limit on how long this can last, but as soon as something changes negatively (bad news, etc.), the market is extremely vulnerable to a sharp decline.
In 2017 there was a similar, though not as severe a divergence, that only resulted in sideways to slightly downward price movement. As they say, the market can be irrational longer than you can remain solvent.
ALERT: A mild Upside Exhaustion Climax appeared today. We will discuss it further down.
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:
RRG® Daily Chart: Not much change on the daily RRG chart this week. Of note, XLV has reversed direction and is headed back into the Leading category. Defensive sectors XLP and XLU are very close to hitting Leading as well. XLC is making a quick turnaround, but it is likely a function of today's 23%+ move by SNAP. Still it is worth a watch.
CLICK HERE for an animated version of the RRG chart.
CLICK HERE for Carl's annotated Sector charts.
Recording "Under the Hood" Indicators with Synergy Traders
Erin was able to get the recording links for the Synergy Traders "Favorite Indicators" educational event from Tuesday and Wednesday and wants to share it with her subscribers. Her presentation is the final webinar on Day 2, obviously saved the best for last! Day One Link and Day Two Link. Usually they only send the links to registrants, but we will continue to get them for our subscribers! Your registration to events is always appreciated.
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: New all-time highs pushed price to the top of the bearish rising wedge. The RSI is positive and not overbought and the PMO is nearing a positive crossover BUY signal. The NDX and OEX both triggered PMO BUY signals today suggesting the mega-caps are continuing to prop the market up.
Another detractor is the shrinking volume on the rally this week. The intermediate-term rising trend is intact, but the bearish rising wedge within is a problem.
SPY Weekly Chart: The weekly chart sports a bearish rising wedge and a weekly PMO SELL signal. Also a problem is the overbought weekly RSI, although it has been mostly overbought since April.
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.
We discussed this chart in the opening. This is one of the strongest negative divergences we've seen in some time. However, we cannot discount the fact that these readings are in near-term oversold territory.
We saw some improvement in participation, but we only have about half of the index with price above their 20/50-EMAs.
Climax Analysis: We had a mild Upside Exhaustion Climax today as New Highs spiked and Net A-D was outside the normal range. However, we didn't really confirmation from the Net A-D Volume, but the VIX still remains beneath its EMA on the inverted scale which suggests internal weakness in the very short term.
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 also 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.
One of the reasons we consider today a "mild" Upside Exhaustion Climax is that we really didn't get confirmation of the climax on our Volume Ratio charts. You can see Monday's Downside Exhaustion Climax, Tuesday's Upside Initiation Climax and Wednesday's Upside Exhaustion Climax which was followed by a Downside Initiation Climax yesterday on the NYSE Down/Up Volume Ratio. The latter never quite materialized on the NYSE, but given today's mild exhaustion climax, we could see it manifest on Monday.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
STOs have been rising steadily with price and both are now in positive territory. However, there is a strong negative divergence on today's new all-time high.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
These indicators began rising this week with the market, but like the STOs and PMO, there are negative divergences on new all-time highs. Note that less than half of the index is on a PMO BUY signal and yet, we have new all-time highs.
Bias Assessment: We've added "bias assessment" to our DP Alert reports. While it is somewhat mechanical in definition, nuances exist that we will clarify as needed.
When the percentage of stocks > 20-EMA is greater than the SCI reading as it is today, we have a bullish bias in the short term. The reverse is true when it is less than the SCI.
When the percentage of stocks > 50-EMA is greater than the SCI as we do today, that is an intermediate-term bullish bias. The reverse is true when it is less than the SCI.
CONCLUSION: Today we had a mild Upside Exhaustion Climax. This comes alongside price reaching the top of the bearish rising wedge. Total volume is shrinking as the market climbs higher and negative divergences remain. Both the NDX and OEX triggered PMO BUY signals suggesting that mega-caps are continuing to keep the market aloft. Overall we expect to see a pullback from these all-time highs next week. Erin's current market exposure is 35% in anticipation of this pullback.
Calendar: There is an FOMC meeting next Tuesday with the announcement on Wednesday. It is likely that the market will be quiet until the announcement. No major (or minor) change in the Fed's stance is expected.
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Bitcoin is finally trading above the 20-EMA again. The RSI just moved positive and the PMO is now on a BUY signal. We have seen this before with negative results, however this time, the short-term declining trend has been broken. Next test for Bitcoin? The late June top where this declining trendline began.
The declining trend continues in yields.
10-YEAR T-BOND YIELD
This looks a lot like the rebound in early July that failed at the 20-EMA; this time it will likely fail at the 200-EMA. Yes, the PMO has turned up, but that's what it did in early July and we see how that worked out. Until we see a positive RSI and PMO crossover, we don't expect to see the declining trend erased.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The RSI is positive on the Dollar, but the PMO is looking toppy. There is also a bearish rising wedge that suggests a break from the current rising trend.
The confirmation line of the large double-bottom is nearing, but given this short-term rising wedge, it may take a bit longer to resolve to the upside. If price loses the 20-EMA, we may need to scuttle the pattern.
UUP Weekly Chart: The weekly chart is positive and suggests that the confirmation line will ultimately be broken to the upside.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: BUYas of 5/21/2021
GOLD Daily Chart: Gold resolved the short-term rising wedge as expected to the downside. GLD is holding support at $168, but given the negative RSI and flat PMO, we may see more downside that would test the intermediate-term rising trend.
We do not want to see the PMO top below the zero line given the configuration of the RSI. It appears that Gold will test the intermediate-term rising bottoms trendline.
GOLD Weekly Chart: The weekly chart is giving us very little information in terms of the weekly RSI and weekly PMO which remain neutral. Support is near at 1775, but we still would look for Gold to test the long-term rising bottoms trendline. Next week this chart may be more enlightening.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners spent all week moving sideways. Participation is anemic so don't look for a big breakout yet. These oversold participation numbers tell us there will be bargains here, but it isn't time to throw the fishing line in.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: After testing the intermediate-term rising bottoms trendline, price rallied into the end of the week bringing price back above the 20-EMA. The RSI is now positive and the PMO is beginning to rise.
The longer-term rising bottoms trendline was breached as price appeared ready to test the 200-EMA. This week's strong turnaround tells us to keep an eye on the Energy sector.
USO/$WTIC Weekly Chart: $WTIC hit overhead resistance so it shouldn't surprise us to see USO top as well. The weekly RSI is no longer overbought, but the weekly PMO is turning lower. Given the long tail on both weekly OHLC bars, we should see prices continue higher next week.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: The rising trend continues on TLT which makes sense given yields are in a declining trend.
The PMO is getting on the overbought side, but remains on a crossover BUY signal. The RSI is positive. We would expect a test of the July top.
TLT Weekly Chart: The weekly chart suggests a breakout ahead as well. The weekly RSI is positive and the weekly PMO is rising strongly out of oversold territory.
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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