I've had a few readers email me and tell me that our indicators, particularly our participation indicators, are oversold enough to look for a reversal. I will say that they are oversold. Oversold enough? I don't think so. I decided to pull out our long-term participation chart for context.
I've annotated blue dashed lines in the indicator windows to show you where typical oversold extremes result in market reversals. Notice how far away our indicators currently are from truly oversold territory. While a reversal could occur right now from these currently 'oversold' readings, the important point is that these indicators can accommodate much further downside movement before getting to oversold extremes.
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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 XLP are picking up momentum. XLY and XLRE seem firmly planted in Leading. XLK is Weakening, but a turn back up would be a very bullish sign for that sector and hence the market.
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 short-term rising trend has now been compromised. However, the 50-EMA and the intermediate-term rising trend are still intact. The PMO has just about entered near-term oversold territory, but it isn't showing signs that it will stop declining anytime soon. The RSI has reentered negative territory.
Currently the longer-term rising bottoms trendline is being tested right now.
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.
The BPI is headed lower but hasn't reached oversold territory. The GCI is still mostly overbought. The SCI is reaching near-term oversold levels, but is still sitting above its July low.
The ST Participation chart suggests we are at oversold levels, but as I noted in the opening, we've seen much lower numbers.
Climax Analysis: Our climactic indicators do not display a climax today, but Net A-D was elevated and New Highs nearly disappeared today. The VIX is rising out of oversold territory but remains below its EMA which tells me there is still some internal weakness.
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.
Volume ratios did display a climax today. It's a bit hard to decipher given we had a rally yesterday, but are still in a declining trend. Our best guess is this could be a possible selling exhaustion which would suggest higher prices ahead. However, we simply did not get confirmation of this on our ST Climax indicators so I would hesitate to put too much weight on the elevated Down/Up ratio readings.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERSOLD.
STOs are still mixed with the STO-B rising slightly and the STO-V moving lower today. Both are oversold, but are not at oversold extremes when you look at the September October readings. Less than 1/4 of the SPX have positive momentum. It will be very difficult for the market to rise when there is no positive momentum to fuel it.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM and ITVM both continue to decline. The ITVM hit negative territory yesterday. Neither is oversold. %PMO BUY signals continues lower. The indicator is getting oversold but can accommodate more market decline given that typically oversold readings are around 20 or lower based on prior market bottoms.
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 bearish bias remains in both the short and intermediate terms. The SCI reading is higher than participation numbers of %Stocks > 20/50-EMAs.
CONCLUSION: There was zero follow-through on yesterday's rally. Volume ratios were elevated and could indicate a selling exhaustion, but given we had a rally yesterday it could be looked at as an initiation to lower prices. The tiebreaker? Since our climactic indicators didn't show a climax, I would look at today as a "non-climax" and expect the decline to continue. Right now the only saving grace for the market is support at the 50-EMA. I remain 70% exposed to the market but have tightened my stops further on my more aggressive holdings and set trailing stops to preserve profit on my other holdings.
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I mentioned a positive OBV divergence yesterday. That could be playing out on this latest rally. The RSI is reentering positive territory and the PMO is decelerating its decline. Until we see oscillation above the 20-EMA, I would exercise caution.
Yields are moving mostly sideways since breaking out of their declining trend.
10-YEAR T-BOND YIELD
$TNX broke below its short-term rising bottoms trendline. It is currently holding support at the late August low, but given the now negative RSI and topping PMO, I would expect at least a test of support at the mid-August low.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Yesterday's comments still apply:
"UUP is basically consolidating above the 200-EMA. Overall the chart is mostly neutral given the RSI is sitting at net neutral 50 and the PMO is flat. Hard to make any sweeping conclusions about where the Dollar is going."
"Price broke down from the bearish rising wedge and is now trying to recover. "
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: GLD was up on a day when the Dollar was again unchanged. This suggests buyers are continuing to come in. The PMO is clinging to a crossover BUY signal in positive territory. The RSI just reentered positive territory.
(Full disclosure: I own GLD)
GOLD Daily Chart: Yesterday's comments still apply:
"$GOLD seems to be forming a large bullish reverse head and shoulders. It's too early to call it as we need to see a breakout above the neckline at $1840."
GOLD MINERS Golden and Silver Cross Indexes: 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: Big bearish engulfing candlestick today on USO tells us to expect a decline tomorrow. However, even though USO was lower on the day, it is holding above the short-term declining trend. The RSI is positive and the PMO is slowly ascending which is bullish.
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 broke out strongly on the drop in yields today. The RSI looks very positive and the PMO is nearing a crossover BUY signal. Next up is a test of an overhead resistance 'zone' between the July and August tops.
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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