I try not to start with the same chart as presented the day before, but given today's upside climax, I thought it appropriate to show you the expansion of New Highs on trading today. This is often an earmark of a climax day. Yesterday's upside initiation climax was not accompanied by much of an expansion in New Highs; however, today it is clear that we have a big jump which confirms today's upside climax.
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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: XLE and XLY currently "lead" the other sectors, but XLY is beginning to turn down somewhat. XLF entered Improving and is headed in the bullish northeast heading. XLI is also showing a bullish heading but remains in Lagging.
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 was able to leap frog the 50-EMA and closed just above the 20-EMA. In the short term, there are two declining tops trendlines that price is now up against.
The RSI moved into positive territory, but the PMO hasn't actually turned up. Momentum is clearly shifting as the PMO has begun to flatten out.
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.
We are still seeing deterioration of long-term participation as the GCI continued its decline today. This means that more stocks have lost their "golden crosses". The SCI did halt its decline, but didn't move up much.
Participation improved greatly as more stocks found their way back above their 20/50-EMAs. We also saw more stocks move back above their 200-EMAs. A shrinkage here means those improving stocks are not going to lose their "golden crosses" just yet.
Climax Analysis: Clearly looking at our chart, today was a climax day. I already remarked in our opening that we saw an expansion of New Highs. We also saw elevated Net A-D numbers and the Up/Down Volume Ratios all signaled today as a climax. The question is whether it is an exhaustion or initiation. Since yesterday was an initiation, we have to consider this an upside exhaustion climax. Typically we would expect to see lower prices over the next day or two. However, after a discussion with Carl, we agree that it is an exhaustion climax but it likely is signaling some churn ahead rather than a deep decline. He pointed me to the moves out of similar upside exhaustion climaxes back in June and July.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERSOLD.
The STOs did rise today and they are still in oversold territory. This is short-term bullish, but readings are still in negative territory. There was a vast improvement in upside momentum for the members of the SPX. We now have nearly 50% with rising PMOs.
Intermediate-Term Market Indicators: The intermediate-term rising market trend has been BROKEN and the condition is OVERSOLD.
IT indicators did turn up today which is very encouraging. We still have an anemic percentage of stocks on PMO BUY signals.
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 market bias is still somewhat bearish given participation percentages are lower than the SCI percentage. On the positive side, it is looking a bit more neutral than bearish.
CONCLUSION: It appears traders are buying the dip right now. I think it is important to recognize that Energy took a leadership role in today's rally given XLE was up 3.5% (similar to last Wednesday). If we see a slump in Oil prices, that would change the landscape. On the flip side, all four of the "defensive" sectors were at the bottom of the Sector Summary and that suggests we also have buyers rotating into growth areas like Financials and Technology.
More than likely today's upside exhaustion climax will result in sideways churn with a "trickle up" on prices. We don't believe the rally is over, simply that the exuberance experienced yesterday and today will subside. I am 70% exposed to the market and am leaving my stops where they are. I don't think expanding my exposure is wise until we see how this buying exhaustion resolves.
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Bitcoin rallied but is still under its 20/50-EMAs. Additionally, the declining trend hasn't been broken yet. The large rounded top is still in play.
Yields are moving mostly sideways since breaking out of their declining trend.
10-YEAR T-BOND YIELD
Apparently the fifth time was charmed as the 10-year yield broke out after four separate unsuccessful tests of overhead resistance. This confirms the bullish ascending triangle pattern and suggests we will see follow-on to the upside.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP fell but is still holding onto its short-term rising trend.
The 20-EMA is still holding up and the PMO is on a BUY signal. We are seeing a decline on the RSI and the PMO is flattening which could suggest that the short-term rising trend is in jeopardy.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold gapped down today and lost support at the June low. The RSI and PMO are falling suggesting this level of support will not hold.
(Full disclosure: I own GLD)
GOLD Daily Chart: $GOLD closed on its support line. We have seen a rebound from this level, but as noted above, the indicators are negative meaning this support level is far from strong.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners fell, likely spurred on by Gold's demise today. Price is still in a bullish falling wedge, but it appears price may need to test the bottom of the wedge. That would mean much lower prices for GDX. We see no improvement on the "under the hood" indicators.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/7/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO rallied bringing the Energy sector to the top of today's Sector Summary. However, price has now hit overhead resistance at the July tops.
We do see a very positive RSI and PMO. The RSI is in positive territory and not overbought. The PMO is rising on an oversold BUY signal and has plenty of room to move higher before getting overbought.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT was decimated today with the pop in the 20-year treasury yield. Given the 10-year yield chart is very bullish, I suspect rates will continue to rise. Today's decline caused a PMO crossover SELL signal.
The RSI also moved into negative territory. Price is testing support at the January bottom. I would look for a test of the 200-EMA given the 2nd failure to break out of the bullish symmetrical triangle.
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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