Today on the Materials (XLB) sector, the 20-EMA crossed above the 50-EMA ("Silver Cross"), triggering a new IT Trend Model BUY signal. Materials have been poised to do well since the PMO crossover BUY signal near the end of July. However, price hit overhead resistance and has struggled.
The PMO is still rising and has now reached above the zero line. On the bearish side, the SCI for XLB is already topping, as is the BPI. We don't have relative outperformance against the SPX right now despite the PMO and this IT Trend Model BUY. Likely the demise of Gold had rippled effects within this sector.
Be prepared, with very little margin between the 20/50-EMAs, we could see a whipsaw right back to a Neutral signal.
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
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: XLB has now entered the "Leading" quadrant, but as noted in the opening, there are possible problems "under the hood".
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: The market closed almost unchanged on the day. The OBV has a negative divergence with price tops suggesting this decline could continue. The RSI is positive. It will take a concerted move to the downside before it gets negative. For now, price is staying in the upper half of its 14-day price range.
The rising wedge continues to imply a breakdown of the intermediate-term rising bottoms trendline. I did check, even if we were to add a shorter-term rising bottoms trendline, the rising wedge is still there.
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.
Carl discussed the concept of a "stealth correction" during today's DecisionPoint show. The video hasn't been posted to the website or YouTube yet, but you'll find our playlist of all of our shows at this link. When the new show is up (around 7:00p ET), you will find it there.
What he noted was that given the decline in the SCI, many of the smaller cap stocks within the SPX have corrected, hence the low SCI reading. The SPY is being held aloft by some of the mega-cap stocks within the index. What does that mean for the market? It could mean that we will continue to see chop, but with a bullish bias. The problem right now is that the SCI isn't showing any improvement and it is in a strong negative divergence with price.
Participation is currently 'okay', but the negative divergences still bother us.
Climax Analysis: No climax today. New Highs are continuing to contract. The VIX is hovering above its EMA and hasn't punctured the upper Bollinger Band on the inverted scale. This shows internal strength or at least a bullish bias in the very short term.
Short-Term Market Indicators: The short-term market trend is NEUTRAL and the condition is NEUTRAL.
The STOs moved slightly higher but continue to show a strong negative divergence with price tops. Note that when these indicators have had strong negative divergences it nearly always leads to a market decline.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT.
IT indicators rose slightly today and continue to sport a negative divergence with price. Again the negative divergences are a concern given they also generally precede a market decline.
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.
The bullish bias is slight in both the ST and IT. I do note that the SCI had a positive crossover and is headed higher, but we want to see higher participation of stocks above their 20/50-EMAs. Those stocks are what will push the SCI higher and if we have nearly equal number of stocks above the 20-EMA as there are stocks that have their 20-EMA > 50-EMA, that number can't improve by much.
CONCLUSION: The 'stealth correction' suggests that the market could regain its footing given the SCI is attempting to rise. However, there isn't much support to push it much higher as nearly all of the stocks with their price above the 20-EMA (~63%) are already counted in the SCI reading (~61%). The negative divergences on the STOs are particularly concerning. We remain cautious moving into this week. I have pulled back my exposure to 55%.
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The Bitcoin rally is on despite rumblings of possible regulation of the crypto market. It has it $47,500 and could be turned away at this overhead resistance. There is also a bearish rising wedge forming. Admittedly, if it breaks above this resistance level, it could move skyward quickly. The PMO is on a BUY signal and isn't overbought. However, the RSI is overbought. The last time it hit overbought territory, we saw a pullback. I am looking for a retest of the 20-EMA.
Yields are breaking from their declining trends. A rising yield environment is going to tear down Bonds quickly. Time to head for the exits.
10-YEAR T-BOND YIELD
$TNX has technically triggered a double-bottom pattern by finishing above the confirmation line. We still haven't seen it get back above the 200-EMA, but given the new PMO BUY signal and newly positive RSI, we expect to see that breakout and then some.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: UUP gapped up last Friday and continued higher today. This has pulled the PMO back up and has kept the RSI in positive territory.
You can make a strong case that we have a bullish cup and handle pattern that is beginning to resolve upward. You could even bring back to life the large bullish double-bottom. The outlook is good for the Dollar.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold gapped down again today which took out support. The PMO is headed lower on a crossover SELL signal and today Gold saw a "Death Cross" of the 50/200-EMAs.
(Full disclosure: I own GLD)
GOLD Daily Chart: The one-year chart of $GOLD shows that price tested longer-term support at the March lows and did recover somewhat. The RSI is now oversold. The last time this happened Gold did not rally strongly, it chopped around sideways and then dropped below support. I don't see a big rally ahead for Gold particularly if the Dollar continues to rally. Clearly Gold is completely out of favor. Best to steer clear given it could easily move back down to test today's intraday lows.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners dropped again. Gold is certainly not helping. Participation is almost nil. The PMO is about to trigger a crossover SELL below the zero line. The RSI is negative, but not really oversold yet. It appears that Miners will need to test those March lows just like Gold.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Good news and bad news on the USO chart. Bad news is the deep -2% decline today with a negative RSI. The good news is that the short-term rising bottoms trendline is still intact and we have a bullish hammer candlestick.
More bad news is the bearish double-top that is dominating the one-year chart. More good news is that the rising trend is holding up and there is support also available at the March top. Despite the good news, I remain bearish on Crude Oil given the ugly PMO and RSI.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: SELL as of 1/8/2021
TLT Daily Chart: As noted in the "yields" section of the report, long-term yields are picking up and that spells disaster for long-term Bonds. Today the short-term rising trend was compromised and that actually kept the 50-EMA below the 200-EMA, stalling the "Golden Cross" BUY signal that was lining up. Even if we get a golden cross, I'm not a fan of Bonds right now. Yields look too bullish and now we have a falling PMO and negative RSI.
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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