Natural Gas (UNG) had a huge rally today and looks bullish moving forward. We presented UNG as a "Diamond in the Rough" back on April 14th. The stop was never hit and the position, at the top, was up over 124%. Full disclosure, do have a position in Nat Gas.
I was contemplating selling it as it appeared that a bearish head and shoulders had developed on the chart. However, after observing its "personality", I wasn't convinced this was a topping formation. What do I mean by "personality"? Something you will notice on most technical charts is that each stock or ETF seems to have a personality, meaning the stock typically reacts a certain way within a trend. In the case of UNG, it's personality in a bull market configuration (20-EMA > 50-EMA > 200-EMA) is to pullback to the 20-EMA and rally OR to pullback to the 50-EMA and rebound. Notice that it had recently rebounded off the 50-EMA. That was enough to keep me in my position.
I had no idea it would rally to this degree, but it has and now the technicals look very bullish. The RSI is now in positive territory. Today the 5-EMA crossed above the 20-EMA for a ST Trend Model BUY signal. The PMO has turned up. Stochastics are very favorable as they had already bottomed and had begun rising even before today's big rally. Finally, we have a nice positive OBV divergence with price bottoms that led into this rally off the 50-EMA.
Signs point to higher prices in the short term.
The DecisionPoint Alert Weekly Wrap presents an end-of-week assessment of the trend and condition of the Stock Market, the U.S. Dollar, Gold, Crude Oil, and Bonds. The DecisionPoint Alert daily report (Monday through Thursday) is abbreviated and gives updates on the Weekly Wrap assessments.
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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: XLI has dropped into Weakening. XLY and XLB are showing excellent relative strength. However, the sectors that really impress? XLRE (sector to watch a week ago) is traveling in the very bullish northeast heading and XLU (this week's sector to watch) has made a turnaround and is heading northeast as well. XLP is nearing a "Silver Cross", but it isn't very healthy. XLC is still Lagging and not showing much improvement.
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: Today new all-time highs were set on the SPY. The rally could still have some staying power given the positive RSI and rising PMO which is not overbought.
Stochastics are also positive. They are overbought, but moving sideways above 80. This implies internal strength.
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 still improving, but given the strength of the rally, we would've expected to see a higher reading by now. The GCI is holding steady between 82% and 83% which is a strong foundation.
Participation is deteriorating somewhat which doesn't make sense given the strength of the current rally to new all-time highs. Carl noted in today's DecisionPoint Show that %Stocks > 20-EMA is higher than %Stocks > 50-EMA. The SCI cannot improve unless price is above both EMAs. Basically, you can't have a "silver cross" of the 20/50-EMAs unless price is above both. In the short term, the readings are overbought and now falling.
Climax Analysis: No climax today. The VIX is now moving sideways, avoiding a puncture of the upper Bollinger Band. That's positive as those punctures on the inverted scale usually mean a decline ahead. New Highs contracted on today's close which is bearish considering we hit new all-time highs.
Short-Term Market Indicators: The short-term market trend is UP and the condition is EXTREMELY OVERBOUGHT.
The STOs were mostly unchanged today. Both indicators are extremely overbought and as of Thursday, had begun to drop. This is short-term bearish. Notice that %stocks with rising momentum is topping in overbought territory.
Intermediate-Term Market Indicators: The intermediate-term rising market trend is UP and the condition is NEUTRAL.
The ITBM and ITVM are rising which is intermediate-term bullish. However, we do note that they are near-term overbought. %PMO BUY signals is now very overbought. So far they are still rising, but we can see that when that indicator turns down, it is generally time to hit the exits.
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 percentage is rising and participation percentages are higher than the SCI. That does give us a short-term bullish bias. However, participation is beginning to wain. The long-term bias is bullish given over 80% of stocks are on "Golden Cross" BUY signals. However, notice that %Stocks > 200-EMA is lower. That suggests we will see the GCI continue lower.
CONCLUSION: The market is healthy and setting new all-time highs. There are few problems under the surface given the decline in stocks > 20/50/200-EMAs. The STOs are also topping. Intermediate term indicators are getting overbought but are still on the rise which is bullish. Short-term we expect the market to begin consolidating sideways to absorb the rally from the October low given the contraction of New Highs and participation.
I'm 85% exposed to the market.
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Bitcoin could be setting up a bearish head and shoulders formation. We don't have a right shoulder yet so it's too early to call it one. The indicators are somewhat mixed with the RSI positive and Stochastics rising, yet a topping PMO. For now, it appears that overhead resistance at 65,000 will be tested again, but unless the PMO turns up, that could be a reversal point.
Long-term rates are holding support which suggests long Bonds are going to struggle.
10-YEAR T-BOND YIELD
The top of the rising trend channel was tested and now we are seeing the 10-year yield declining. Support looks very strong at the 1.55 level as it aligns with the 20-EMA and the bottom of the channel. Indicators are all topping which suggests we will see support tested.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar isn't doing much. It's trapped between resistance at the 20-EMA and support at the 50-EMA. Stochastics are turning up which means we could see UUP move back up to test overhead resistance at the October high. The PMO and RSI are mostly neutral so we don't expect a thrust in either direction.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold traded above the 200-EMA all day and finished higher. The RSI is positive and rising. The PMO is on a BUY signal and has just hit positive territory. The OBV is confirming the rising trend and Stochastics are rising implying internal strength.
(Full disclosure: I own GLD as a long-term buy and hold position.)
GOLD Daily Chart: Discounts are still relatively high meaning sentiment is currently bearish. They are contracting somewhat and that tells us that investors are a bit more bullish on the metal. The rising trend channel suggests Gold will move higher to test the top of it. I like Gold.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners continue to look more and more bullish. With Gold looking more and more bullish, Miners should continue to move higher. This summer took a toll on these stocks, but this October rally looks very strong. The RSI is positive and not yet overbought. The PMO is positive and rising. If you want something to complain about, the 200-EMA hasn't been broken yet. Participation is also very overbought... however, looking at past history, those indicators can remain overbought for weeks at a time.
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 declined. We had a higher intraday high so the rising trend is still intact. It is now traveling in a rising wedge and we will likely see the steeper rising trendline breached. However, support at the bottom of the rising trend channel and the 20-EMA should be enough to prevent a big decline.
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 last week. The chart is looking more favorable. We have a possible reverse head and shoulders pattern. Additionally, the PMO is nearing a positive crossover and Stochastics have turned up. Still, overhead resistance is likely going to prevent a big rally.
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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