The market may've recovered late in trading yesterday, but the selling continued today. A recovery was attempted, but after notes were released from the FOMC suggesting tapering is already beginning. The market began to descend quickly with a strong amount of selling to finish the day. Note the PMO's acceleration downward right now. In our estimation today was a downside initiation climax, meaning this is just the beginning of the 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: Sectors showing new strength on the RRG would be XLU, XLI and XLP. All are traveling in the bullish northeast heading. When market strength comes from defensive sectors, that generally precedes a market decline.
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 dropped and closed below the 20-EMA. Over the past five months when this happens the market takes a trip down to the 50-EMA and the rising bottoms trendline that forms the bottom of a bearish rising wedge.
The RSI is still positive, but barely. The PMO had a crossover SELL signal trigger today as well. Total volume wasn't particularly climactic, but as you'll see, all of the other earmarks of a selling initiation came into play.
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.
On Monday (8/9) Carl discussed the concept of a "stealth correction" during the DecisionPoint show. You can watch it HERE.
Interestingly the SCI didn't pull back much today and the GCI remained steady.
The damage to participation continues as more stocks lose support at their 20-EMAs and 50-EMAs. It isn't surprising that 55% of stocks are now below their 20-EMAs given the SPY just broke below it.
Climax Analysis: The climax I expected to see yesterday materialized today. Why is it a climax? New Highs fell dramatically today and Net A-D was definitely outside the normal range. The VIX punctured the lower Bollinger Band on the inverse scale which generally leads to a market bottom. However, the Bands are squeezed and the reading itself isn't particularly oversold.
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 way that we confirm market climaxes is to look at Volume Ratios. Both the NYSE and SPX Volume Ratios were above our threshold of "3.0" suggesting that indeed, today was a climax day.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is NEUTRAL.
The STOs moved quickly lower today reaching negative territory. The readings are not oversold. Notice that barely 25% of the SPX have rising momentum. That will need to see significant improvement if we want a sustained rally.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM/ITVM continued to pullback from near-term overbought conditions. The intermediate-term rising trend is in jeopardy. More stocks saw PMO crossover SELL signals trigger today as well.
Bias Assessment: We've added this new section called "bias assessment". It occurred to us 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. Any "mechanical" signal requires additional analysis to confirm the numbers.
It doesn't take a math degree to see that we have a bearish bias in the market. Participation numbers are well below the SCI reading suggesting we will see it move much lower sooner rather than later.
CONCLUSION: Today we had a downside initiation climax. Combined with very negative indicators and deteriorating participation we are looking for the decline to continue until it reaches support at the 50-EMA. It is now time to keep an eye out for an upside initiation climax when support is reached. If we do not see climactic activity on a rebound, lower prices should be expected. More than likely the intermediate-term rising trend will be compromised given the decline in our IT indicators. I am exposed 45% to the market, but my positions did okay today so I didn't sell, but I am still looking to divest when the charts tell me to, likely early tomorrow.f
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Bitcoin is attempting to rebound before it hits support at the 20-EMA, support at the January top and the rising trend line. Given those all coincide around $42,500, this should be a sturdy level of support. The RSI remains positive and the PMO is trying to turn up above the signal line.
Yields are pulling back after their recent breakout.
10-YEAR T-BOND YIELD
The 10-year yield moved higher today but remains below the 20-EMA. The rally of the past two day has managed to stop the PMO's descent. I see a test of the declining tops trendline and the 50-EMA ahead.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar was unchanged today but it did see an intraday high above the short-term declining trendline. The PMO is in the process of triggering a crossover BUY signal and the RSI is firmly within positive territory. I'm looking for a breakout here.
UUP nearly had a "Golden Cross" BUY signal today. It only missed it by one-hundredth of a percent, so we will see it tomorrow. I see a bullish cup and handle pattern. The rally out of the declining trend has been messy, but it is a rising trend nonetheless.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold failed one more time to close above resistance. The PMO is attempting to trigger a crossover BUY signal and discounts are starting to reach somewhat oversold territory, meaning participants are still feeling bearish about Gold even after the recent rally. However, we've seen stronger bearish sentiment back in March and April.
(Full disclosure: I own GLD)
GOLD Daily Chart: $GOLD looks slightly better as the highs of the past two days have reached above overhead resistance. However, with the Dollar looking bullish, Gold will have to find strong momentum to outweigh that bearish pressure. It just doesn't look strong enough to do that yet.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners dropped out of the bullish falling wedge. A bearish conclusion to a bullish pattern is especially bearish. On the bright side support at the March low is arriving soon and could be an excellent reversal point. However, we need to start seeing improvement in participation and that is not happening yet.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 8/18/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Today the 20-EMA crossed below the 50-EMA generating a IT Trend Model Neutral signal. It is a Neutral signal and not a SELL signal because the crossover occurred above the 200-EMA. Today's harsh decline broke the short-term rising trendline but also broke support at the May tops and prior low this month.
The one-year is quite bearish as we see a large bearish double-top. Price is about to test the confirmation line of the pattern which aligns with the July low and the March high. Given the negative RSI and now negative PMO, I am looking for a breakdown.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT is holding above the 20-EMA and today's candlestick was a bullish engulfing as the body 'engulfed' the body of yesterday's candlestick. You could also make a case for a very short-term bull flag. Interest rates are fluctuating but still haven't seen a decisive breakout from their declining trend suggesting that Bonds should continue higher.
I have noted previously that we have a cup shaped bottom with a symmetrical triangle acting as a handle. This would suggest a breakout ahead, but the PMO is rather sluggish.
Technical Analysis is a windsock, not a crystal ball.
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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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