The market rallied on the open, but began to slowly shave gains as the day progressed. The final hour of trading was marked by heated selling that took price below very important support at last Tuesday's high and gap support from Wednesday. The 10-minute candlestick chart below tells the story. The 10-minute PMO is diving lower after topping below the signal line. The RSI is now oversold which is good, however it continues to move lower. The next area of strong support would be at the Tuesday lows and late Wednesday low. This could form a solid support zone.
Below is the 10-minute candlestick chart showing after hours trading. The good news is that the heavy selling at the close didn't carry over into after hours trading. Indeed, the PMO has given us a positive crossover and the RSI is attempting to rise out of oversold territory. This bodes well for trading tomorrow, but the market is showing plenty of internal weakness based on our indicators that I will go over below.
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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 XLF are stalling, but are still firmly in the Leading quadrant. XLI and XLP have now entered Leading with XLB not far behind. XLU and XLC are beginning to improve. As consumer spending becomes an issue, XLY will continue to see deterioration.
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: At lunchtime during the free DP Trading Room, this chart looked fairly healthy. The market was up, the RSI was rising toward positive territory and the PMO was rising. Upon the sell-off in the afternoon, both indicators turned back down. A topping RSI below net neutral (50) is very negative and generally, PMO tops beneath the signal line are considered especially bearish. One of the bright spots would be Total Volume was very low which makes the late day selling a little less ominous.
The VIX is oscillating above its EMA on the inverted scale and that does suggest internal strength. The bullish falling wedge is also something for bulls to hang onto. I noted in the opening that the gap was filled to the downside on the 10-minute charts. This suggests more downside.
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 was finally starting to rise last week, but today's decline pulled it down slightly. The GCI resumed its decline. Therefore, both have tops beneath their signal lines which is bearish.
Participation is dropping off in all timeframes. This is occurring before readings even reached overbought territory. Notice how price is still in a declining trend and it is topping every time it tests the 20-EMA.
Climax Analysis: Today was not a climax day despite the late day sell-off. Volume Ratios are below climactic levels. While we did see very negative Net A-D, it wasn't enough to call this is climax. Price is holding support for now.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERBOUGHT.
The STOs have topped in overbought territory. This doesn't bode well for the short-term timeframe. %PMOs Rising has dropped off considerably out of overbought territory.
Intermediate-Term Market Indicators: The intermediate-term rising market trend is DOWN and the condition is OVERSOLD.
These indicators continue to rise which is positive for the intermediate term. This might suggest any short-term decline will be short-lived.
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.
Given the SCI is reading in the 40's the intermediate-term bias is bearish. The GCI is still reading bullish at 84%, but it is in decline. Short-term bias is about as neutral as you can get given participation readings are identical to the SCI reading.
CONCLUSION: It appears the market is ready to drop back down and test the bottom of the bullish falling wedge given gap support did not hold and price was unable to vault the 20-EMA. The STOs are falling and participation is beginning to fade. We were looking for a digestion of last week's gap up rally. Instead we see a failure. The intermediate term is still looking okay given the ITBM/ITVM are still rising. Earnings season is coming up and many are lowering estimates. Areas of the market that are looking bullish? Energy in general and Materials are heating up. Financials are showing relative strength, but they report next week. With the market shaky right now, holding into earnings is dangerous.
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Bitcoin continues to rally higher. It will have its hardest test of resistance very soon at the May top. The RSI is overbought, but that doesn't seem to be a problem when Bitcoin starts to roll. The PMO is still rising. We no longer have volume on the chart. There was a volume spike last Thursday that skewed the OBV. We've opted to remove it. For now, I've added Stochastics. Stochastics imply price should continue higher as they are rising again.
The Bond market was closed for Columbus Day.
10-YEAR T-BOND YIELD
Bond Markets were closed today.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP tried for the third time to break above the late September high. The RSI is positive. The PMO has flattened in overbought territory.
Both rising trends are still intact. Flat top and rising bottoms suggest a breakout ahead.
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 support. Friday's pop looked encouraging until price closed near the low for the day. The PMO is still on a BUY signal, but the RSI is drifting lower in negative territory.
(Full disclosure: I own GLD as a long-term buy and hold position.)
GOLD Daily Chart: Discounts are still very high, suggesting that investors are bearish on Gold. Sentiment is contrarian so we would like to see those discounts increase to levels above 2.25. Investors are simply not bearish enough. More than likely we will see Gold continue to move sideways.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners were down today. Even though GDX lost less than 1/3rd of a percent, we saw short-term participation (%Stocks > 20-EMA) drop by 20%. The SCI is staying at the same level and is above its signal line. The PMO is on an oversold BUY signal. The RSI isn't positive yet, but is headed there. %Stocks > 50-EMA is still headed higher. I don't believe we will see price fall all the way down to the bottom of the wedge. I'd like to see a strong breakout move, but we may just see price drift sideways out of the bullish falling wedge.
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 continues to accelerate higher. The indicators are still very strong. There is no denying USO is very overbought. Volume has contracted over the past three days which could suggest the rally is losing steam.
We need to be careful given the "parabolic" nature of the rising trend, but we've certainly seen the RSI stay overbought and the PMO looks overbought on the 6-month chart above, but on the annual chart, we can see that the PMO can rise even higher. For now we expect to see Energy and Oil continue to rise.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT continues to lose ground. We do have a bullish falling wedge, but the indicators are still very negative. Look for a test of support at the April/May tops.
There is a longer-term rising trendline that is about to be tested. This provides additional price support. However, we believe yields will continue higher and that will likely result in a breakdown for TLT.
Technical Analysis is a windsock, not a crystal ball.
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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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