Lots of news today! First, both XLI and XLRE had IT Trend Model "Silver Cross" BUY Signals trigger. I will include a write-up on each under the "Sectors" section of the report. Second, the SPY logged new all-time highs again. Finally, TLT saw the 50-EMA cross below the 200-EMA which triggered a LT Trend Model "Death Cross" SELL signal.
I'll look at the TLT chart in the section on "Bonds", but below I have the chart of the 30-Year Yield ($TYX). TLT is tied to the 20-year yield, but we don't have an intraday chart view of the 20-year so we will use $TYX.
We don't have a confirmed breakout yet on $TYX, but the indicators are very positive and suggest a breakout is imminent. The RSI is positive and Stochastics are rising sharply. Additionally, the PMO has bottomed above the signal line which is especially bullish for $TYX. When treasury yields rise that puts downward pressure on Bonds. Given the new "death cross" on TLT, we would expect to see it fall further, especially given the bullish outlook for yields 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.
The 20-EMA crossed above the 50-EMA on both XLI and XLRE. These charts already were showing strong indicators and participation "under the hood". I am concerned that the SCI on XLI is turning down, but participation of stocks > 20/50-EMAs is still higher than the SCI so the bullish bias remains.
The SCI is more favorable for XLRE. Participation is increasing, but is overbought. Still, we know based on history this year that those numbers can remain in highly overbought territory for weeks.
RRG® Chart: Despite logging a new IT Trend Model "Silver Cross" BUY signal, XLI is about to slip out of Leading into Weakening. XLY is looking very strong. XLRE and XLK should reach Leading 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 SPY did breakout above resistance at all-time highs. I do notice that SPY volume has been tapering off with this rally. We've also had seven straight days of rally. Exhaustion is inevitable. However, the indicators do remain very positive.
The RSI is positive and not overbought and the PMO is rising strongly and is also not overbought. Stochastics are overbought, but so far it remains above 80 and looks like it will stay there as it moves sideways.
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 continues to rise nicely. The SCI is still mostly oversold and has plenty of room to move higher. The GCI is still holding steady at 82.6% which is bullish long term.
Participation paused but remains at healthy percentages that can sustain a rally. %Stocks > 20-EMA is in overbought territory, but there is still room if it wants to continue higher.
Climax Analysis: No climax today. The VIX is now very overbought on our inverted scale which does suggest a possible decline or pause, but with the Bollinger Bands expanding, it hasn't punctured the Band. Net A-D Volume was negative today, but only slightly.
Short-Term Market Indicators: The short-term market trend is UP and the condition is EXTREMELY OVERBOUGHT.
The STOs are overbought and today they pulled back. This would suggest a decline or pause ahead. We did lose a few stocks that had rising momentum, but the reading is still bullish at 83%.
Intermediate-Term Market Indicators: The intermediate-term rising market trend is UP and the condition is NEUTRAL.
The IT indicators are all positive. We would note that %PMO Crossover BUY Signal is now overbought. This has been an area of resistance for that indicator.
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 SCI is now over 50% and participation of stocks > 20/50-EMAs is much higher than the SCI. This gives us a bullish bias in the short and intermediate terms. Long-term bias is still bullish given the GCI and stocks > 200-EMA are above 80%.
CONCLUSION: Today resistance was broken at all-time highs. It happened quite easily. Indicators are still very positive, but given the contraction of the STOs and very overbought VIX reading, I still think we need to set stops. I'm cautiously optimistic that we will continue this rally, but it is time for it to cool as indicators are beginning to get very overbought in the short term. I'm not expecting a big sell-off, probably just some choppy sideways movement with a slight rising trend. We will wait patiently for the next climax day to alert us to any short-term weakness.
I'm 85% exposed to the market.
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Bitcoin pulled back after setting all-time highs. The steep rising bottoms trendline hasn't been compromised. This pullback was needed. It has already brought the RSI out of overbought territory. Stochastics are slightly concerning as they head down, but more than likely we will simply see sideways readings as Bitcoin marches up.
Rates are moving higher, putting downward pressure on Bonds and Bond funds.
10-YEAR T-BOND YIELD
The top of the rising trend channel was broken which is very positive. Given the very bullish RSI, PMO and Stochastics, I expect to see the yield reach overhead resistance at the March highs.
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:
"The Dollar is now testing the 50-EMA. Given the falling and negative RSI and PMO SELL signal, I would look for UUP to test the bottom of the bearish rising wedge."
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold continues to cling to the rising bottoms trendline. The chart is set up for a breakout on Gold. The RSI is positive, the PMO is now rising out of oversold territory and Stochastics have turned back up.
(Full disclosure: I own GLD as a long-term buy and hold position.)
GOLD Daily Chart: Sentiment is bearish given the discount rate on PHYS, but they have begun to contract which suggests investors are getting more bullish toward Gold. On $GOLD the rising trend channel is intact.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are consolidating the rally out of the September low. The PMO has now entered positive territory and the RSI is positive and not overbought. I'm not happy to see the SCI tip over, but participation "under the hood" is still strong. This looks like a bull flag, so I'm expecting a breakout above this level of resistance at the November/July lows and 200-EMA.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/7/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil pulled back today, but the steep rising bottoms trendline is still intact. I would expect to see it broken. However, I don't expect a giant decline. More likely we will see price pull back to the 20-EMA before heading higher.
IT Trend Model: NEUTRAL as of 10/1/2021
LT Trend Model: SELL as of 10/21/2021
TLT Daily Chart: TLT experienced a "death cross" of the 50/200-EMAs. As discussed at the beginning of today's blog, yields are looking very bullish. The PMO has topped below the signal line and the RSI is sitting firmly in negative territory. Stochastics are dropping quickly. I expect to see TLT move to $140 very soon.
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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