Energy (XLE) has finally broken above its 50-EMA. It hasn't seen a close above this EMA since price began to top in early July. Carl and I reviewed the chart and he agrees we also have a bullish reverse head and shoulders. It is a down-sloping neckline that was broken today to confirm the pattern. Based on the height of the pattern, XLE could rally to the June top.
The indicators "under the hood" are very bullish as well. The RSI has hit positive territory and the PMO is rising on an oversold crossover BUY signal. The Silver Cross Index (SCI) is rising strongly and based on a comparison of its reading and participation (%Stocks > 20/50-EMAs), there is a strong bullish bias. Look for Energy to continue to rally.
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
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: Prior leaders XLC and XLRE are beginning to fade with XLK. However, XLK does look like it may make a turn back toward Leading. XLE is showing major relative strength and is moving at a northeast heading which is very bullish. XLU is strengthening and heading toward improving.
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 rallied today, closing above the 20-EMA after bouncing off the 50-EMA. The RSI is now positive, but momentum hasn't quite turned positive yet.
Total Volume was elevated and the VIX closed above its EMA which is bullish coming on a strong rally.
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.
It is hard to make out, but the SCI did bottom today and the BPI flattened. We are still seeing deterioration in the long term as the GCI continues its descent.
Participation is improving. I may have been too hasty when I said that indicators weren't likely oversold enough to support a rally. Clearly we are seeing improvement coming out of oversold conditions.
Climax Analysis: Yesterday it appeared we might have had a selling exhaustion climax, but Net A-D and our other climactic indicators weren't really on board. Today we definitely have an upside initiation climax. Net A-D nearly crossed above our 300 threshold and Net A-D volume was elevated. I already pointed out an increase in Total Volume and a VIX that has now reached back above its EMA on the inverted scale.
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 also 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.
Carl and I discussed the Volume Ratio charts today. We are starting to find that the Ratios are a better predictor of climaxes. Rather than use them strictly as confirmation tools, we will now be looking for climaxes based on Volume Ratios. Today, we didn't see climactic readings on the NYSE Volume Ratio, but the SPX Up/Down ratio is in the "climax zone".
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERSOLD.
STOs both rose strongly out of oversold territory. They suggest this is a short-term price bottom. We also are seeing increased momentum with 1/3rd of the SPX having rising PMOs.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The intermediate term doesn't look quite so bright. All IT indicators are continuing to decline, but all are in near-term oversold territory. Still, we don't have confirmation that a new short-term rally will result in a longer-term increase in price.
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.
We still are showing a slight bearish bias on our assessment chart. The SCI reading is higher than both the %Stocks > 20/50-EMAs. However, those participation indicators are now rising out of oversold territory.
CONCLUSION: Energy led the way on today's rally. Those beat down stocks are now beginning to participate and that could be one of the reasons we are seeing an improvement in participation numbers. I would definitely chalk up today's upside climax as an "initiation" to higher prices in the short term. The intermediate term is still somewhat murky given IT indicators continue to decline. However, the bounce off the 50-EMA looks good and it did preserve the longer-term rising trend. I am 70% exposed to the market, but will likely increase my exposure in the Energy sector. The short-term is looking bullish so we can loosen stops.
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Bitcoin rallied back above the 20-EMA. The RSI has reached positive territory and the PMO has turned up. I would look for a test of overhead resistance at 50,000.
Yields are moving mostly sideways since breaking out of their declining trend.
10-YEAR T-BOND YIELD
$TNX rose today, but was unable to recapture the prior short-term rising trend or support at the 20/50/200-EMAs. The PMO topped but already appears to be decelerating. The RSI is still negative. Overall the chart is neutral.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: I still look at the Dollar as sitting in neutral. It is being squeezed between the 20/200-EMAs. The RSI is weakening, but the PMO is moving mostly sideways.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: With the Dollar in neutral, Gold is looking neutral as well. The RSI is mostly neutral and the PMO is moving mostly sideways, clinging to positive territory.
(Full disclosure: I own GLD)
GOLD Daily Chart: Given the neutral chart, I would expect to see $GOLD continue to travel sideways. I am keeping an eye out to see if the reverse head and shoulders shapes up.
GOLD MINERS Golden and Silver Cross Indexes: Yesterday's comments still apply:
"Gold Miners rallied after a difficult week. Participation is beginning to shape up as %Stocks > 20-EMA has moved quickly higher. This participation reading is much higher than the SCI reading of 6.67%. The bullish bias is building. Price closed beneath the 20-EMA so that resistance is still holding, but the picture is brightening for Gold Miners."
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/7/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Clearly the bearish engulfing candlestick was a red herring. USO gapped up, pushing price above the gently declining tops trendline. We did see the formation of a bearish shooting star candlestick, but given the very bullish indicators, I expect a test of resistance at the July top.
Yesterday's comments still apply:
"We could be looking at a reverse head and shoulders pattern which is bullish. However, it is coming at the top of a rising trend. In any case, price appears ready to test overhead resistance at the July highs given the rising PMO and RSI."
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT seems to have been stopped at the overhead resistance zone formed between the July and August tops. However, the PMO is in the process of triggering a crossover BUY signal and the RSI is positive. This breakout from a symmetrical triangle suggests we will see a breakout here.
Technical Analysis is a windsock, not a crystal ball.
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