This morning I met with Carl at our regular "staff" meeting and he pointed this chart out to me. One of the indicators that I really like is the 10-MA of the New High/New Low Differential. I've noticed over time that when this indicator tops are is topping, the market is vulnerable to a decline. Today we did see an expansion in New Highs, but a negative divergence still remains. Additionally, the 10-MA of the Differential is topping. Just another negative divergence and indicator that are signaling trouble is likely on the horizon.
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MAJOR MARKET INDEXES
SECTORS
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: XLF has now entered the "Leading" quadrant.
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 eventually finished higher today setting new all-time highs once again. Overall price is staying above the 20-EMA and is moving sideways. I don't like that price has yet to test the top of the rising wedge. If it turns down without testing the top of this channel, there is a high likelihood we could see a breach of the 20-EMA ahead.
Currently the RSI remains positive and will remain positive as long as price stays in this tight oscillation above the 20-EMA. The PMO is currently on a crossover SELL signal, but we will likely see it whipsaw around some more making it less than helpful.
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.
The SCI is definitely looking more bullish as it rises after its recent positive crossover the signal line. What I don't like is that the GCI is losing ground suggesting long-term cracks in the foundation. Moving averages lag price so seeing damage to this long-term indicator does give us pause.
While the GCI is just below 93%, the %Stocks with their price > 200-EMA is lower which means those stocks are vulnerable to having a "death cross". The sky isn't falling in the intermediate term, but certainly we should see stocks gaining ground against the GCI and currently they are not.
Climax Analysis: No climax today, but we did see a nice expansion in New Highs and Total Volume. On a day where we saw new all-time highs this is good. Also good is the VIX oscillating above its EMA on the inverted scale. It suggests we do have internal strength in the very short term.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
We do not want to see the STOs falter on a day when the SPY hit new all-time highs. It's keeping the negative divergence in play and suggests the market will turn lower this week.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT.
We like that the ITBM and ITVM are continuing to rise, it tells us that the intermediate-term rising trend should remain intact. The problem I see on the chart is the tipping over of %Stocks with Crossover BUY signals. This number should be improving as we set new all-time highs and it is not.
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.
There is a very slight bullish bias in the short term given we have more stocks above their 20/50-EMAs than "Silver Crosses". The negative divergences do take the shine off those improving participation readings.
CONCLUSION: There is a slight bullish bias in the short term based on participation; however, the Swenlin Trading Oscillators are configured very negatively as they continue to contract even as price moves higher. We are seeing the same problem with New Highs and the 10-MA of the High-Low Differential. The bulls have tight reins on the market and with participation improving somewhat, we may not see a significant decline just yet. However, we must be prepared for one. A rising Dollar is not good for businesses tied to overseas markets and that describes most of the mega-cap stocks that are holding the market up. It might be a good time to tighten some stops or set trailing stops on your winners. I am 55% exposed to the market.
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BITCOIN
Bitcoin reached the top of the rising wedge and resistance at $47500 and pulled back slightly. The RSI is overbought and suggests we could see a pullback at least back to support at $42500. The PMO is still rising and in fact, has a positive divergence with price lows. Support should hold, but it is time for more downside.
INTEREST RATES
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 rose nearly two basis points and is now sitting above the 200-EMA. This rally executed the bullish double-bottom and that suggests we will see it rise to test overhead resistance at the June lows with a minimum upside target that would push it even higher. The RSI is now in positive territory and the PMO is rising off a crossover BUY signal in oversold territory. Higher rates should follow.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The Dollar continues to gain ground and is now nearing overhead resistance at the July high. The RSI is positive and the PMO is rising which does suggest it will break above that level and eventually test the March top.
Bigger picture, you can see a bullish cup with handle pattern. That would suggest the Dollar will overcome resistance at the March top and push much higher.
GOLD
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold was mostly unchanged. A lower low was established and looking at the 5-month GLD chart, that candle is hanging out there with no support available.
(Full disclosure: I own GLD)
GOLD Daily Chart: The one-year chart for $GOLD looks a bit more favorable given yesterday's intraday low tested support and then finished higher. We see a slight expansion in discounts, but we are nowhere near extremes. The RSI did move into oversold territory and it is now attempting to rise. However, until the PMO looks more healthy, I expect Gold to remain below the June low.
GOLD MINERS Golden and Silver Cross Indexes: The bottom fell out on Gold Miners and the picture isn't improving much. I have annotated a support line that aligns with the late March low, but that's it. Consequently it isn't likely to hold up. The SCI had a negative crossover and participation is nil in the short-term and nearly zero in the intermediate and long terms.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO bounced today as was suggested by yesterday's hammer candlestick that sat atop strong support at the May tops and the rising bottoms trendline. I noticed quite a few Integrated Oil & Gas stocks as well as Exploration stocks in my Diamond scans today. While this looks good as a bottom, the 20/50-EMAs are both going to pose difficult resistance. The picture is getting brighter, but it isn't quite bullish enough for me to invest in oil related energy stocks.
BONDS (TLT)
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: Today there was a "Golden Cross" BUY signal on TLT. This signal is definitely late to the party. In fact, all that's left of that party are empty bottles and dirty plates. Yields are breaking out strongly and that spells disaster for Bond ETFs. While price could hold at the 200-EMA, it isn't very likely given the break of the rising trend, negative RSI and falling PMO.
Technical Analysis is a windsock, not a crystal ball.
--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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Price Momentum Oscillator (PMO)
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