Carl and I had brief discussion regarding yesterday's downside initiation climax. The market finished slightly higher on very high volume. We often remind readers when options expiration is about to occur because typically you will see high volume and not a lot of price movement. Additionally, it will sometimes trickle higher as traders buy to cover shorts.
I like to give you a different chart each day, but yesterday's 3-day price chart gives you a clear picture of elevated volume and when it came in. Notice it came in to the upside at reversal points during the day. If you're covering a short, you want to do so when the stock is at the low for the day. Given the positive volume to finish the day, we suspect we might see more churn tomorrow with a possible finish to the upside like we saw today.
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
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: XLP is now back in the "Leading" quadrant and XLV has taken a 180 and is moving strongly toward "Leading".
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 may have finished higher on the day but that candlestick doesn't impress me much. The RSI is holding above net neutral (50), but the PMO is headed lower quickly on a crossover SELL signal.
Price nearly hit the 50-EMA and the bottom of the bearish rising wedge. The expectation is a break down from the wedge.
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 and GCI held steady today.
The damage to participation settled down. However, they aren't oversold. I am looking for participation to dwindle further.
Climax Analysis: Yesterday's downside initiation climax played out somewhat during today's opening drop. We did not see climactic readings today despite somewhat elevated Total Volume. Admittedly the VIX is well below the bottom Bollinger Band on the inverted scale and that typically precedes a bottom. While that is a possibility, we also note that the VIX is not that oversold.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is SOMEWHAT OVERSOLD.
The STOs continued to tumble lower and are now sitting in somewhat oversold territory. He now have just over a quarter of the stocks in the SPX with rising momentum. Seeing this indicator stop its descent is promising, but not enough to convince me a solid price bottom is in.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM/ITVM are still pulling back which suggests the rising trend (and bottom of the bearish rising wedge) will not hold this time around. We now have less that half of the SPX on PMO crossover BUY signals.
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.
Yesterday's comments still apply:
"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: The market finished higher today, but just barely. Today's candlestick looks far from bullish given the lower lows and lower highs. We don't believe the downside initiation climax is over, but options expiration is muddying the waters with the spike in volume. We could see more of the same tomorrow. The market is about to hit a "decision point" as it hits support along the 50-EMA. This is an area it has previously found support and given the elevated VIX readings, it could again. Even if we get a bounce, the STOs and particularly the ITBM/ITVM tell me it won't last. Just be prepared for a break down. My exposure is being pared back and I'm at 35% currently.
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BITCOIN
Yesterday's comments still apply:
"Bitcoin is attempting to rebound before it hits support at the 20-EMA, support at the January top and the rising bottoms trendline. 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."
INTEREST RATES
Yields are pulling back after their recent breakout.
10-YEAR T-BOND YIELD
The PMO is topping and the RSI is headed down. $TNX was held up by the 20-EMA and turned down today. Discussion of tapering did see rates pop a bit higher yesterday, but there is the consideration that we won't likely see the big rise in rates until tapering becomes brisk. At this point, it's mainly a discussion point. Tapering has already been occurring, just very slowly.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP saw a LT Trend Model "Golden Cross" BUY signal after the Dollar rallied today. It is now challenging resistance at the March top. The RSI and PMO are configured very positively.
UUP nearly had a "Golden Cross" BUY signal today. I see a bullish cup and handle pattern and you could still make a case for a large double-bottom. The March top is the confirmation line for the double-bottom. A breakout would imply UUP could reach $26.00 or more.
GOLD
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold failed again to break above resistance. The PMO is trying to give us a crossover BUY signal, but the RSI remains negative. Given the bullishness of the Dollar, it will be an uphill battle to rally. It is already struggling. This could be a small bull flag, but I'm not convinced yet.
(Full disclosure: I own GLD)
GOLD Daily Chart: $GOLD doesn't look as much like a flag. It looks like a rounded top below the 50-EMA.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are now testing its lows for the year. Given this decline is a bearish conclusion to a bullish falling wedge, I see this breakdown as especially bearish. This could be a nice reversal point, but participation isn't improving and with the Dollar looking ready to breakout, I'd be looking for consolidation at best.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 8/18/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil prices continued to dive lower. USO is now testing the 200-EMA. The RSI is getting oversold but isn't there yet and the PMO is continuing to accelerate below the zero line.
We now have a 'confirmed' double-top as the confirmation line was broken. While this could be a good reversal point for crude, the pattern suggests price will move much lower.
BONDS (TLT)
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: Yesterday's comments still apply:
"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.
--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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