After yesterday's downside exhaustion climax I was watching the market's reaction closely. Would the bulls be able to wrest control back or would bears win the day? The market did see a bump on the open, but it was rocky trading from there as bulls and bears played tug of war. You can see how bulls lost ground as every push to the upside was turned away. This formed a bearish descending triangle on the 5-minute candlestick chart. Interestingly, the downside target of the formation is yesterday's low. The 5-min PMO had a negative crossover to finish the day and the RSI is falling in negative territory. This doesn't look like a set-up for a rally.
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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. XLP, XLF, XLI and XLV have bullish "northeast" headings, but are still 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: While support did hold at the August lows, today's candlestick is a bearish engulfing. The RSI is negative and the PMO continues to drop. Total Volume contracted quite a bit from the prior two days, but I don't see that as a positive.
I don't think that we can completely rule out an island reversal pattern. However, I don't favor that conclusion given the very negative indicators.
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.
Not surprisingly, both the GCI and SCI continued to pull back.
Participation was lower but it is sitting in oversold territory.
Climax Analysis: A buying initiation would have been nice to see, but we didn't get any climactic readings. We've decided to change the look of our climax indicator chart to include the Volume Ratios. We're finding these ratios to be very predictive and rather than have them on a separate chart, it made more sense to add them to the climax indicator chart. We've also lengthened the timeframe so that it is easier to spot the upside and downside climaxes. A red vertical line is a downside climax (exhaustion or initiation) and the green vertical line marks upside climaxes (exhaustion or initiation).
The VIX did contract somewhat, but still closed beneath the lower Bollinger Band on the inverted scale. Typically these punctures lead to upside reversals or at least some consolidation.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERSOLD.
The STOs are negative and falling which is bearish. However, they are oversold. We need to see them trending up before we can say a market bottom is coming in. Although I note that they were rising during the consolidation of last week and that didn't pan out as a bottom. Less than 10% of the SPX have rising PMOs--very anemic.
Intermediate-Term Market Indicators: The intermediate-term rising market trend has been BROKEN and the condition is OVERSOLD.
IT indicators are continued lower and have entered oversold territory. What bothers me most about this chart is the loss of the rising trend. 19% of the SPX are on BUY signals, but given only 9% of them have rising PMOs (see chart above), that percentage will likely continue to deteriorate.
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:
"The overall market bias in the short and intermediate terms is bearish. We have far fewer stocks above there 20/50-EMAs than stocks with a 20-EMA > 50-EMA or SCI percentage. The SCI cannot improve unless these stocks get price back above those key moving averages."
CONCLUSION: Yesterday's downside exhaustion climax resolved with mostly sideways movement. Indicators are very oversold and sentiment among my colleagues and other analysts is very bearish. Sentiment is contrarian so the more people believe the market will tank the better. Oversold indicators are bullish, but we know they can get even further oversold OR hold oversold conditions for days and even weeks. There is more downside to endure. The FOMC statement will arrive tomorrow afternoon. Taper talk has an already weak market scared. Evergrande is set to default on Thursday. The debt ceiling is going to have to be dealt with shortly. All of these issues make investors nervous and could certainly contribute to a market correction.
I am 70% exposed to the market with tight stops in play.
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Bitcoin did not recover. It lost very important support at both the January 2021 top and June/July tops as well as the 200-EMA. The indicators are very negative. Next support level available is $37,500.
Yields are moving mostly sideways since breaking out of their declining trend.
10-YEAR T-BOND YIELD
Yesterday's comments still apply:
"$TNX failed to breakout for a fourth time. This does form the top of a bullish ascending triangle. Given the close beneath the key moving averages, I would expect to see the short-term rising trend tested."
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar fell slightly. The indicators are positive with the RSI above net neutral (50) and the PMO on a BUY signal. There is a short-term rising trend channel, but price could continue lower to test the short-term rising trend.
Overhead resistance was met and price turned lower.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold, a traditional safe haven in a market decline, was up on the day. The indicators are improving with a rising RSI and PMO, but strong resistance is ahead at the key moving averages and the earlier August/September lows.
(Full disclosure: I own GLD)
GOLD Daily Chart: Discounts have been elevated and generally that is bullish for Gold. However, we've seen far deeper discounts previously. More than likely overhead resistance will prove too strong for $GOLD.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners were mostly unchanged but we did see a higher low than yesterday's. Price close right on overhead resistance. Indicators are still very negative and there isn't any real participation to push GDX higher. There is a bullish falling wedge and if price does rebound here, it could be bullish as it didn't have to test the bottom of the wedge before moving higher. However, we've seen that condition occur twice in late August and early September and it didn't breakout.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/7/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:
"USO tested support at the 20-EMA after failing to overcome resistance at the July top. However, the indicators are still fairly bullish. The RSI is positive and the PMO while flattening, hasn't sustained much damage."
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT finished mostly unchanged. Overhead resistance is posing a problem. That resistance level is a "zone". While we have a PMO BUY signal and a positive RSI, the 20-year yield has a rising trend that could pressure TLT and keep it below the resistance zone.
Technical Analysis is a windsock, not a crystal ball.
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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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