Yesterday's downside initiation climax didn't play out. The market instead rebounded strongly this morning and continued higher until the last 15 minutes of trading. The final minutes saw an extreme amount of selling volume. Additionally, we have a negative divergence with the PMO. So while we have an upside initiation climax day, the very short-term price movement and momentum suggest we won't see the follow-through we expect.
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® Chart: Sector rotation turned on a dime this week with prior defensive leaders like XLB, XLU and XLP as well as darling XLF dropped precipitously into the "Weakening" quadrant. New leadership is being seen in XLK, XLC and XLRE. Energy may be in the "Lagging" quadrant, but given its big rally this week, there are plenty of potential short-term investments waiting inside this formerly beat down sector.
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: We had a new all-time set today, but price has yet to penetrate the top of the bearish rising wedge. We did see a new PMO crossover BUY signal today. Total Volume on the SPX was up slightly from yesterday but is awfully puny for an upside initiation climax.
The RSI is positive. If we do see follow-through with a strong breakout on today's buying initiation climax, we could then possibly look for price to retrace to the top of the intermediate-term rising trend channel. Certainly food for thought.
SPY Weekly Chart: The market has now gained over 108% since the bear market low, but the longer-term bearish rising wedge still dominates the chart.
SPY Monthly Chart: The month will close out next week, so we are going to take a look at the monthly charts in today's Weekly Wrap. There is no denying that the market is in the midst of a strong parabolic rally. Parabolics generally end badly. Currently price is very overbought based on the RSI and while the monthly PMO is rising it is very overbought.
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 GCI lost some ground this week, but the SCI did see slight gains. The SCI hasn't had a positive crossover yet, but it is technically rising out of near-term oversold territory.
Participation confirmed today's rally as readings jumped higher. While they are near-term overbought, they could certainly accommodate more upside. Longer-term negative divergences still put a bearish pall on the improving numbers.
Climax Analysis: Net A-D pushed outside its normal range and Net A-D Volume was elevated. New Highs expanded. The VIX made its way back above its EMA this week on the inverted scale. Typically this is good for the market. Price will tend to rise with the VIX (inverted) and turn down when the upper Bollinger Band is punctured. The VIX still has headroom before reaching the upper Band.
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 primarily 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.
Up/Down Volume Ratios confirmed this is a climax day as they rose above the 3.0 level. These readings are we've seen since mid-July at the short-term bottom. The difference is those readings arrived after an established downtrend.
The S&P 500 version can get different results than the NYSE version because: (a) there are only 500 stocks versus a few thousand; and (b) those 500 stocks are all large-cap stocks that tend to move with more uniformity.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The rising STOs yesterday hinted that the downside initiation climax could fail to produce. Today, they continue to rise, suggesting price will continue to rise. The big problem? They are very overbought, certainly not at extremes, but very close. We did see a marked improvement in stocks with rising momentum. 62% stocks now have rising momentum which could bode well for the market next week.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT.
The ITBM/ITVM reversed direction this week. They are now getting overbought, but they are rising providing evidence that supports a buying initiation.
Bias Assessment: Now that participation numbers are higher than the SCI, we can say that there a bullish bias is returning in the short to intermediate terms.
CONCLUSION: Yesterday's selling initiation climax didn't pan out so we wonder if this buying initiation will pan out. The evidence is mixed. The STOs suggest it will, but they are also overbought. IT indicators suggest it will but there continue to be clear negative divergences on the IT chart. Rotation is moving into more aggressive areas of the market like XLC and XLK. Generally, this type of rotation leads to higher prices. Energy is revving up and could provide some interesting opportunities given it has been beaten down. Defensive areas of the market are losing relative strength. The bullish bias of the market and conflicting indicators tell us to expect limited, if any, follow-through on today's buying initiation. Erin is currently 50% exposed to the market.
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The rising trend channel was compromised somewhat and could be considered as a possible execution of the bearish rising wedge. However, it is holding the 20-EMA and is managing to hold above the April low. We do have negative divergences on the PMO and the OBV. The PMO is currently on a crossover SELL signal. The RSI is positive, but the negative divergences could weigh heavy.
Yields are heading lower after a gentle rise to begin the week. Overall long-term rates are now moving sideways.
10-YEAR T-BOND YIELD
Another failed breakout for $TNX as the 10-year yield dropped below both the 50/200-EMAs. The PMO is still technically rising, but the RSI is about to leave positive territory. Given the failed breakout and a possible bearish double-top, we expect rates to move a bit lower.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar slid lower but UUP is still holding the short-term rising trend. The PMO and RSI have turned negative suggesting a breakdown here, but the 50/200-EMAs are nearby for support.
While we can still make out bullish double-bottom and cup with handle patterns, in the near term, there is a large bearish rising wedge. Given the negative PMO and RSI, along with the bearish rising wedge, we will be looking for a breakdown.
UUP Weekly Chart: The weekly chart is still favorable as the bullish double-bottom is clearly visible. The weekly RSI is dropping but remains positive. The weekly PMO is stalling just below the zero line.
UUP Monthly Chart: The monthly chart is still somewhat negative given the RSI below net neutral (50) and a monthly PMO that has just moved below the zero line. Still, this does have bullish attributes given the double-bottom and price holding above both the 6/20-month EMAs.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GOLD Daily Chart: With today's drop in the Dollar, Gold enjoyed a solid rally. Price recaptured the rising trend and vaulted the 50/200-EMAs. The RSI is rising in positive territory and the PMO is rising on an oversold BUY signal.
$GOLD looks very bullish with price making its way back up to the top of the July trading range. Discounts remain somewhat elevated and that is generally good for gold.
GOLD Weekly Chart: The weekly chart improved as the RSI just managed to hit positive territory and the PMO turned back up above the zero line. While discounts are elevated, we can see they are not oversold yet.
GOLD Monthly Chart: We had a somewhat parabolic advance on Gold over the past 3 years. It did break down but price hasn't quite reached the original basing pattern between 1000 and 1400. The monthly PMO is quite negative. However, you could make a case for a bullish cup with handle or bull flag. This month's long "tail" on the OHLC bar is bullish and price did finish the month (so far) above the 6/10-month EMAs. Currently, the inverse correlation with the Dollar is strong, so a failure of the Dollar here would be especially bullish for Gold.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners rallied to begin the week then trickled lower. Today with the rally in Gold and the market, Miners benefitted. The chart is improving, but we still have a negative RSI and 0% with 20-EMAs above their 50-EMAs. However, there is a very strong bullish bias given the improvement in participation. Price closed above the 20-EMA for the first time since the gap down earlier this month. There is a bullish falling wedge and the PMO has turned up and is going in for a crossover BUY signal.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 8/18/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: XLE was the big winner this week, much of it having to do with the strong rally in Crude Oil prices. After testing the 200-EMA last Friday, price rocketed higher. The PMO is generating a crossover BUY signal and the RSI is now positive. Oil is poised to move higher.
The one-year chart sports a bullish falling wedge. The pattern was executed this week and also promises higher prices.
USO/$WTIC Weekly Chart: The weekly PMO isn't completely convinced of the rally as it is on an overbought SELL signal. The weekly RSI did manage to stay in positive territory. Looking at both $WTIC and USO, we can see possible bull flags getting ready to execute.
WTIC Monthly Chart: The monthly RSI is positive and the monthly PMO is rising, albeit getting overbought. While the chart has a bullish bias, we aren't fond of the failed test of overhead resistance this month.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT closed above the 20-EMA today and the RSI moved into positive territory this week. There is a symmetrical triangle. These are continuation patterns and suggest an upside breakout. Given price didn't need to test the bottom of the triangle before turning up, that breakout should occur soon.
TLT Weekly Chart: Price is confined in a trading range currently, but we should see a positive crossover of the 17/43-week EMAs and the weekly PMO has hit positive territory. The weekly RSI is also positive. The picture in bullish in this timeframe.
TLT Monthly Chart: The monthly chart is mixed with a positive monthly RSI and price pushing past the 6/10-month EMAs. The monthly PMO had begun to decelerate its decline but has yet to turn up. Price is now pushing against the top of the long-term rising trend channel. Definitely a "decision point" for long Bonds. Given the bullish daily and weekly charts, we expect an upside breakout from the channel.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & Erin Swenlin
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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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