Thursdays I have "Reader Request Day" for subscribers of DecisionPoint Diamonds. I've recently seen email and article headings talking about the head and shoulders pattern on the QQQ, the ETF that tracks the Nasdaq 100. I imagine some of you also have questions about my thoughts on QQQ, so I've included an excerpt from today's Diamonds Report as my lead today.
Invesco QQQ Trust (QQQ)
QQQ tracks a modified-market-cap-weighted index of 100 NASDAQ-listed stocks.
Predefined Scans Triggered: Parabolic SAR Buy Signals and Entered Ichimoku Cloud.
QQQ is up +0.08% in after hours trading. Two subscribers wrote in about shorting the QQQ due to the large head and shoulders pattern. I was also asked how good these patterns are at fulfilling. I believe we did indeed have a bearish head and shoulders pattern. But I also believe that it was fulfilled on the breakdown and successful test of the July low. Now it is head back up. I'm not happy with price closing so far beneath its high, but it did hit overhead resistance at the 20/50-EMAs. I'm bullish on the QQQ though.
Looking at the indicators, we can see that the RSI is nearing positive territory, the BPI just had a positive crossover and we now have participation percentages above the 20/50-EMAs reading higher than the SCI. This means the SCI has an opportunity to turn up and that we have a bullish bias. The PMO and Stochastics are turning up. I wouldn't be shorting right now. This looks like it could be a solid short-term bottom.
The weekly chart shows a positive RSI. We don't normally compare rising tops on indicators, I'm only pointing out there because OBV tops are rising, there is no negative divergence. The weekly PMO is ugly and I really don't see it shifting gears yet. It's reached near-term oversold territory, so a switch in direction might not be far off if this short-term bottom holds into the intermediate term with new all-time highs.
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: XLE is beginning to stall a bit, but it is still outperforming the SPY by a mile and remains in Leading quadrant. XLI is coming on strong and has entered Leading. XLY is beginning to lose favor and XLB, XLC and XLU are beginning strengthen within Improving quadrant.
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: Big gap up on the open for the SPY. It reached past $441.50 on the high, but closed much lower and closer to the open. This leaves us with a long wick on today's candlestick. Price did hold above support at the EMAs and today's high did give us a breakout from the bullish falling wedge. The RSI is about to hit positive territory and the PMO has turned back up. The VIX popped back above its EMA on the inverted scale which is positive. If it can stay above its EMA that would suggest internal strength building.
SPX Total Volume was not impressive as it contracted well below its annual average.
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 turned up today in oversold territory. The GCI is holding steady.
Participation is confirming the rally in all three timeframes. The readings are not overbought either.
Climax Analysis: Today we saw some climactic activity on the Volume Ratios. Net A-D was elevated but not outside the normal range. Net A-D volume was somewhat elevated. The one reason I'm not calling today an official climax day is the paltry Total Volume. It just doesn't come across as a climax day. However, it does suggest the short-term rally may need a breather. That long wick on price doesn't inspire confidence on a continuation. You could even make a case for a reverse island setting up.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs popped higher and are reaching overbought territory already. Their sharp rise does suggest a continuation of today's rally. 68% of the SPX have rising momentum now. That is the broad participation needed to sustain a rally.
Intermediate-Term Market Indicators: The intermediate-term rising market trend is DOWN and the condition is OVERSOLD.
Both the ITBM/ITVM are rising out of oversold territory. %PMO BUY signals is at 43% and moving higher suggesting more stocks in the SPX are turning around.
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 in the short-term is very bullish given 53.6% of stocks have price above their 20-EMA and the SCI is reading at 42.2%. We need to see a wider margin between the SCI and the %Stocks > 50-EMA, but the reading is still slightly higher than the SCI.
CONCLUSION: All of the conditions I've been laying out in the DP Alert conclusions have been met to suggest this rally is for real. The SCI has turned up, the PMO has turned up, the RSI is about to move into positive territory and the VIX has moved above its EMA. I remain bullish, but today's candlestick and somewhat climactic readings are problematic and suggest a digestion period ahead.
I'm 70% exposed to the market.
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Bitcoin is pausing after its incredible breakout move. This is good as it takes the RSI out of overbought territory. The PMO looks as strong as ever so we would expect to see Bitcoin move higher. (The volume on this chart is being reviewed by the data team, I'll update it later if needed)
Yields are resuming their rally higher.
10-YEAR T-BOND YIELD
$TNX moved higher about 3 basis points today. This is the highest close since June. The RSI and PMO suggest we will see them move even higher.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: We saw a textbook breakout and throw back to the breakout point. Now we have a decline which sets up a possible double-top. The indicators are still mostly positive, but the PMO looks ready to turn down like the RSI.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold did not benefit from the decline on the Dollar today. I don't like the look of the RSI now and the PMO is trying to avoid a crossover BUY signal. This 'pause' after the rally of last week is getting long in the tooth. At least price is holding onto support despite being compressed by the 20-EMA.
(Full disclosure: I own GLD as a long-term buy and hold position.)
GOLD Daily Chart: Discounts increased slightly as investors decide whether Gold is ready for a breakout. The PMO is my primary indicator so with it keeping pace with its EMA and support holding, I am looking for a breakout.
GOLD MINERS Golden and Silver Cross Indexes: This rally appears real as we got a PMO crossover BUY signal and price closed above the 20-EMA. Participation in the short term has shot higher. Soon they'll get above their 50-EMAs which will lead to a rising SCI. Stochastics are strongly bullish as well.
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 formed a bullish engulfing candlestick today suggesting we will see Crude prices rise again. I'm noticing the formation of an accelerated rising trend channel. Oil may not require a trip down to the rising trendline drawn from the August low.
We could still be looking at a reverse island forming, but given the accelerated rising trend, I don't favor that conclusion.
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT broke down, confirming a bearish reverse flag. Nothing positive on the chart so we expect to see support tested at the June low.
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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