Yesterday the SPY and XLK triggered IT Trend Model "Silver Cross" BUY signals. These signals are generated when the 20-EMA crosses above the 50-EMA. Today, the Dow Industrials joined the party, garnering its own Silver Cross BUY signal. Now we wait for the Nasdaq and NDX to join in. I suspect tomorrow's headline will be new Silver Crosses on both of those indexes.
Looking at the chart of $INDU, I spot a loose triple-bottom pattern. Last Thursday, the breakout confirmed the pattern. The minimum upside target of this pattern is about 36,800. The PMO is on a crossover BUY signal and has reached positive territory. Stochastics are still rising but are on the overbought side. The next hurdle for the Dow is overhead resistance at all-time highs. Given the bullish indicators and chart, that is a perfectly reasonable upside target.
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MAJOR MARKET INDEXES
SECTORS
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: XLY has made a comeback and is now in Leading. XLE and XLF continue to fall further into Weakening. XLK and XLRE are showing new strength and should reach the Leading category very soon.
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 10/18/2021
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: The market continues to run higher after last Thursday's upside initiation climax. We have yet another gap. I would still be careful as this could be an exhaustion gap. For now, it looks like a continuation gap. The PMO has now entered positive territory and is rising nicely out of an oversold crossover BUY signal.
Total Volume was anemic today. Given the strong rally, I would've liked to have seen elevated volume accompanying it. This reminds me of Dr. Alexander Elder's discussion of the "Hounds of the Baskervilles" volume concept. Remember that the dogs didn't bark and that allowed the culprit to get away with murder (until Sherlock solved it of course). The volume dogs are not barking and that could mean this move is going to be exhausted.
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 SCI is rising, but we still have less than 50% of stocks with a 20-EMA > 50-EMA. The SCI is still oversold and given it is rising, that does put a bullish spin to the low reading. The BPI is rising out of oversold territory and isn't overbought yet. The GCI held steady at 82.8%. The reading is bullish given it is not overbought and still reading well above 50%.
Very happy to see participation rising on today's rally, unlike yesterday, where participation contracted despite the rally. Readings are near-term overbought, but if this rally has legs, as I think it does, these indicators can accommodate much higher readings.
Climax Analysis: It was not a climax day. The VIX continues to shrink, but with the Bollinger Bands expanding, it is avoiding a puncture. That is bullish for now.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs spiked higher again today and have now reached overbought territory. We have seen readings greater than 300, but this is getting a bit too close for comfort. However, if we are going to see new all-time highs and a push higher, we can see that these indicators can maintain these high readings. April is a great example.
Intermediate-Term Market Indicators: The intermediate-term rising market trend is UP and the condition is NEUTRAL.
These indicators are rising and as far as the ITBM/ITVM, they aren't at all overbought. %PMO Crossover BUY signals is very healthy, but it is getting overbought. We've seen higher readings and I expect they will move higher still.
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.
As noted earlier, the SCI is reading in the 40's and that is a bearish percentage. However, it is rising and given the strong participation percentages of stocks > 20/50-EMAs, that number should only get better, giving us a bullish bias.
CONCLUSION: The market has decided it doesn't need to digest this rally. We expect that it will soon. Overhead resistance is very near at all-time highs. That generally is difficult resistance to overcome. The rising trend should continue with a possible pause at all-time highs. Given the bullish consensus of our indicators, we expect the rally to continue. Just remember, a digestion period is eventually inevitable after a vertical rally. The indicators suggest it will be a pause versus a shocking decline.
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BITCOIN
After digesting the rally that took price above 60,000, Bitcoin shot up and is about to test all-time highs. The RSI is overbought, but not exceedingly so. Stochastics are overbought, but are oscillating sideways which is bullish.
INTEREST RATES
Support has been found on long-term rates as they begin to inch higher again. Short-term rates continue to trend higher.
10-YEAR T-BOND YIELD
The 10-year yield continues to rise within a rising trend channel. The PMO is bottoming above the signal line and Stochastics are rising. We expect the 10-year yield to move higher and possibly test March highs.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar broke below the August high and is headed to test support along the 50-EMA. Given the PMO SELL signal, newly negative RSI and falling Stochastics, we expect UUP to at least test the bottom of the bearish rising wedge.
GOLD
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: The Dollar's demise (should it happen as we expect) will clear the way for Gold to begin rallying in earnest. For now it is clinging to the short-term rising trend, keeping the double-bottom pattern alive. The RSI and PMO are about as neutral as you get. If we go by Stochastics, this rising trend will be broken. I'm not completely bearish on Gold. The 20-EMA is holding up and there is always the $164 level of support.
(Full disclosure: I own GLD as a long-term buy and hold position.)
GOLD Daily Chart: Sentiment is still quite bearish, but we've seen even deeper discounts. At this point, Gold is traveling within a rising trend channel. It is important that it hold this rising trend.
GOLD MINERS Golden and Silver Cross Indexes: I spy a bull flag on the Gold Miners chart. Price is testing resistance, but if this is in fact as bull flag, we should see the breakout. The upside target would suggest a move that would at least test the $36 level. The PMO is almost above zero and the SCI is pointing straight up as more stocks have 20-EMAs above 50-EMAs. Participation is strong and suggests the SCI will move even higher. Also I note that the SCI reading is the highest we've seen June.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/7/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Price continues to push higher within a bearish rising wedge. The RSI and Stochastics are overbought, but have been so for weeks.
The PMO appears highly overbought on the chart above, but the one-year charts shows us that it can rise much further. We expect Crude Oil to continue to move higher, but acceleration will probably decrease.
BONDS (TLT)
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT is now testing support again. Given the PMO has turned down below the signal line, the RSI is negative and falling, and Stochastics are now falling, we do not expect this support to hold. Look for a test of the $140 level.
Note that the 20-year yield has found support and is moving higher. This will put downward pressure on TLT.
Technical Analysis is a windsock, not a crystal ball.
--Erin Swenlin
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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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