It appears that today's rally is confirming what the climax indicators told us on Monday with the downside exhaustion climax. Today we saw an upside climax. I'll discuss the implications of that climax in the section on "Climax Analysis".
First, I wanted to show you the New Highs/New Lows chart as it can confirm climaxes. You can see an expansion of New Highs. Yet we also saw an increase in New Lows. What interested me most on the chart was the 10-MA of the High-Low Differential. Readings are in oversold territory and it is beginning to decelerate. Typically, the market will rebound just before this indicator bottoms. We could be seeing that right now.
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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: Support held once again, but price wasn't able to recapture support at the 50-EMA. The RSI is now rising, but is negative. The PMO is decelerating in oversold territory which is positive, but it is still in decline.
Total Volume was somewhat puny for an upside climax, but it was slightly higher than yesterday.
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.
SCI and GCI continue lower despite today's rebound.
Participation is now rising out of oversold territory which could suggest this could be a sturdy market bottom.
Climax Analysis: Net A-D was just outside its normal range and suggested a climax. Both the NYSE and SPX Up/Down Volume Ratios were elevated and also suggest today was a climax day. The VIX is rising from oversold conditions on our inverted scale after puncturing the lower Bollinger Band for two days.
Given we recently had a downside exhaustion climax, we would read today's climax as an upside initiation. This suggests we will continue to see higher prices. I would caveat this with a reminder that the last upside initiation climax resulted in consolidation and not a price rise.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERSOLD.
The STOs fell again even on today's rally. This is counter to today's upside initiation. I would say that they are oversold and when they start to rise again, that could confirm this initiation. On the flip side, notice that the were rising while price moved mostly sideways. A rise in these indicators doesn't always result in a market bottom. We have improved momentum as nearly 25% of the SPX have rising PMOs.
Intermediate-Term Market Indicators: The intermediate-term rising market trend has been BROKEN and the condition is OVERSOLD.
IT indicators continued lower and remain oversold. We see a short-term declining trend, but it is difficult to say we have a declining intermediate-term trend. What's important to note is the intermediate-term rising trend was compromised this week. We still have 19% of the SPX with PMO crossover 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 bearish given participation readings on %Stocks > 20/50-EMAs are lower than the 52.4% reading on the SCI.
CONCLUSION: Investors shrugged off the Fed's statement given they intimated they wouldn't start tapering until next year. Evergrande made one of its payments although there is another due tomorrow and there is no word that the Chinese government will restructure its debt. Whether this will play a part in tomorrow's market action is unknown. What we do know is that we had an upside initiation climax today that does suggest higher prices in the next day or two. Indicators are oversold enough to support a lasting market bottom, but both the STOs and ITBM/ITVM are still declining so we don't favor that conclusion.
My stops are in play. I had tightened them this week, but with today's rally, none of them were in jeopardy of triggering. I am 70% exposed to the market and am leaving my stops where they are.
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"How to Identify Market Pivot Points with Climax Analysis"
Tomorrow at 4p ET I am scheduled to present at Synergy Trader's "VIX and News Event Trading" Live Training Seminar. I'll be discussing how to use the VIX as part of my "climax" analysis to determine pivot points in the market. I'd really appreciate you signing up. You don't have to attend the live event. Recordings will be sent to those who register. If you're interested, here's the link.
Bitcoin closed below its 200-EMA but has already rallied back above prior support at $42,500. We see a large rounded top and that would suggest this support level won't be held. The RSI is negative but rising. The PMO is decelerating already, but hasn't come close to triggering a crossover BUY signal.
Yields are moving mostly sideways since breaking out of their declining trend.
10-YEAR T-BOND YIELD
$TNX rose today and got back above all three moving averages. The 50-EMA has a narrow margin between it and the 200-EMA and it is still on a "golden cross". We have a nearly textbook bullish ascending triangle that suggests we will see a breakout. Of course, it has failed four separate times at that resistance level. Still given the positive RSI and rising PMO, we should see a breakout soon.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP rose just over a quarter of a percent today. The intraday high tapped against the prior rising bottoms trendline. The RSI is positive and the PMO is rising on a BUY signal suggesting it should be able to break above resistance.
I've annotated a new rising trend channel which also suggests a breakout ahead for the Dollar.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Price balked at the 20-EMA and closed lower on the day. The RSI which had been showing improvement has topped in negative territory. The PMO continues lower.
(Full disclosure: I own GLD)
GOLD Daily Chart: $GOLD finished higher on the day, but not by much. Discounts remain elevated which is usually bullish for Gold. However, we've seen far deeper discounts previously. It's early, but if Gold can breakout, we would have an interesting bullish reverse head and shoulders. The PMO looks healthier for $GOLD v. GLD which is a plus. However, $GOLD needs to break not only above the EMAs, but near term, it needs to break above the prior September lows.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners finished slightly higher but GDX is still struggling with overhead resistance at the March low. The PMO is still on a SELL signal and the RSI is flat in negative territory. I also note no heartbeat on participation. This could be a good bottom, but the indicators don't support that yet.
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 today and pushed back above the short-term declining trend. The RSI is rising and positive. The PMO is rising slightly. The OBV is flat and not really confirming the rising trend out of the August low.
Price did bounce off the 50-EMA this week which is positive, but the real test will be at the July tops. The indicators are positive enough so there's a good chance it will be able to breakout this time around.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT finished higher. Indicators are positive with the RSI above net neutral (50) and the PMO rising on a crossover BUY signal.
Price has broken out of a symmetrical triangle. The pattern is a 'continuation' so the expectation is for Bonds to rise higher.
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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