Today we had an upside initiation climax. We will cover that in the section on "Climax Indicators". TLT lost its "Silver Cross" and is now on an IT Trend Model Neutral signal. We will discuss that in the section on Bonds.
We had our third sector "Silver Cross" BUY signal lost this week. Previously, XLC and XLV moved from IT Trend Model "Silver Cross" BUY signals to IT Trend Model Neutral signals. Now we have the Real Estate sector following suit with its own negative 20/50-EMA crossover. It is a "neutral" signal because the crossover occurred above the 200-EMA.
XLRE is about to reach strong support at the June lows. It could reverse given the RSI is beginning to rise out of oversold territory. However, momentum is very negative with the PMO moving below the zero line and continuing its descent. There is still a strong bearish bias given the SCI reading is at 62% and %Stocks > 20/50-EMAs are much lower at 45%. This may be a reversal point given that participation did improve today, but we need to see the SCI turn back up.
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
For the week:
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.
For the Week:
RRG® Chart: XLE, XLF and XLY are in Leading, however XLY has started to underperform and will be entering Weakening soon. Despite all of the sectors but Energy finishing lower, relative strength-wise we are seeing some improving sectors: XLB, XLI and XLP. XLU is beginning to reach toward Improving. All of the others are still looking relatively weak.
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: As noted in the opening, today we had an upside initiation climax. However, we saw a lower low and a lower high on the day. However, there are signs that we could see a reversal here. First is the bullish falling wedge pattern and a PMO that is slowing its descent. The RSI is also on the rise. We do need to point out that we also have a very bearish head and shoulders pattern. The down sloping neckline has technically not been broken, but it is something we need to keep a close eye on.
The daily PMO has dropped below the zero line. The last time that happened was ever so briefly last November, and before that was during the 2020 Bear Market. We should also note that SPY is about to lose its "Silver Cross". The 20-EMA is about to cross below the 50-EMA. The last time that happened was at the start of the 2020 bear market.
SPY Weekly Chart: The rising trend line on this chart was penetrated last week, but price closed above it. This week the breakdown was conclusive. The weekly PMO is beginning to accelerate.
SPY Monthly Chart: The parabolic arc on the monthly chart has been pierced, but more conclusive action would be for the monthly PMO to top.
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 SCI continues to drop further into oversold territory. The GCI topped below its signal line this week, but is already beginning to right the ship.
Participation inched higher. The readings are oversold.
We saw an expansion of New Highs today that confirm today as a climax day.
Climax Analysis: We had robust Up/Down Volume readings on both the NYSE and SPY. While upside Net A-D readings were not outside the normal range, they were quite elevated to the upside. Given yesterday's climax was an exhaustion, we read today's climax as an upside initiation. The VIX has yet to penetrate the lower Bollinger Band on the inverted scale, but it is getting close. Speaking of the VIX, it spent this week oscillating below its EMA on the inverted scale which suggests we still have internal weakness.
*A climax is a one-day event when market action generates very high readings in, primarily, breadth and volume indicators. We also include the VIX, watching for it to penetrate outside the Bollinger Band envelope. The vertical dotted lines mark climax days -- red for downside climaxes, and green for upside. Climaxes are either initiation or exhaustion.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERSOLD.
The STOs continued lower today. The STO-B is oversold, but the STO-V really isn't. At the same time, we can see positive divergences on all of our short-term indicators which could also suggest this upside initiation climax could result in higher prices.
Intermediate-Term Market Indicators: The intermediate-term market trend is DOWN and the condition is OVERSOLD.
We picked out a few positive divergences on the IT indicators. The ITVM and %PMO BUY signals have rising bottoms while price bottoms are declining. About 1/3rd of the SPX have PMO Crossover BUY signals. That is enough to generate some upside price action.
Bias Assessment: We still have a bearish bias. The SCI is at 47% and both participation readings of %Stocks > 20/50-EMAs is lower.
CONCLUSION: Today we had an upside initiation climax. This suggests higher prices or at worst sideways churn. We are seeing positive divergences on our short-term indicators which tells us we could see higher prices to start the week. This does appear to be a bullish pivot point for the market as it sits on strong support. However, this is occurring with a bearish backdrop. There is a bearish head and shoulders. Additionally, the VIX hasn't yet punctured the lower Bollinger Band, meaning sentiment isn't as bearish as it could be. While there are positive divergences, the STOs are declining. We would look for slightly higher prices going into next week based on today's upside initiation climax, but we aren't convinced that the decline is over so remain vigilant.
Erin is 70% exposed to the market. She is planning on reducing her exposure to Technology.
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Bitcoin popped today after a nice rally yesterday. Word is this could be a short squeeze, but given the improvement on our indicators, there is a good chance this rally will continue with a possible test of the September top.
Rates pulled back to finish the week, but none have lost support at August highs.
10-YEAR T-BOND YIELD
$TNX rallied strongly but put on the brakes this week. It looked like a bull flag had formed, but that disintegrated on today's 4 basis point drop. It does remain above strong support, so while it may fall to test that support, we suspect it won't break down there.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar soared this week, but ended on a decline. Important resistance was finally broken at the August top. This seems to be a textbook reaction to a strong breakout. We often see throwbacks to the original breakout point.
This decline has taken the RSI out of overbought territory and the PMO hasn't sustained much damage. Look for a test of support and a resumption of the rally.
UUP Weekly Chart: The weekly chart is very bullish. The weekly PMO has now entered positive territory and the RSI is positive and rising. We have a double-bottom and this breakout is confirming the pattern so we should expect a rising dollar.
UUP Monthly Chart: The double-bottom is also visible on the monthly chart. The monthly PMO is rising just above the zero line which is very bullish. The monthly RSI is still in positive territory above net neutral (50).
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GOLD Daily Chart: GLD pushed past resistance at the June low but was stopped at the 20-EMA. The indicators are looking more positive.
Sentiment is hitting oversold territory signaling investors are getting very bearish. The declining trend has not yet been broken but we now have a bullish falling wedge. This could be a short-term reversal point.
GOLD Weekly Chart: The weekly chart isn't inspiring. Intermediate term, we have a solid declining trend and a flat bottom. This forms a bearish descending triangle and suggests a breakdown will occur when price tests the $1650 level.
GOLD Monthly Chart: The monthly chart doesn't inspire confidence either. While we have a bullish cup with handle, the monthly PMO is still in decline. We also note that the reverse correlation with the Dollar is strong right now, meaning Gold will travel in the opposite direction as the Dollar. The Dollar still looks bullish so that will put downside pressure on an already struggling Gold. It doesn't look very positive going into the end of this year.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners are rebounding off the bottom of a bullish falling wedge. However, participation is nil and not showing improvement. Don't trust this rally yet.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/3/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO had a strong week finishing up more than +2.7%. After breaking out it is now consolidating. The rising bottoms trendline wasn't even tested on the early week drop suggesting there is more upside potential.
The RSI is positive and the PMO is rising. The RSI is getting overbought, but the PMO still has plenty of room to move higher before it dips into overbought territory.
USO/$WTIC Weekly Chart: The weekly PMO reversed and is rising toward a crossover BUY signal. The RSI is positive and rising. $WTIC is hitting overhead resistance which could be the reason we saw price take a breather.
WTIC Monthly Chart: As noted, $WTIC is nearing overhead resistance. There is a bullish double-bottom and a breakout will confirm the pattern. The minimum upside target of that pattern is at the 2008 top. The monthly RSI is positive and not overbought. The monthly PMO is rising strongly, but it is getting overbought. We would look for a breakout.
IT Trend Model: NEUTRAL as of 10/1/2021
LT Trend Model: BUY as of 8/6/2021
TLT Daily Chart: Today the TLT 20-EMA crossed down through the 50-EMA, generating an IT Trend Model NEUTRAL Signal. Price is attempting to rebound. The RSI is rising, but is still negative. The PMO is still in decline. Yields still appear bullish as they hold above support.
The strongest area of support is at $140. While indicators are improving, rising yields will likely prevent this rally from getting legs.
TLT Weekly Chart: The weekly chart confirms our bearish stance. The weekly RSI has moved into negative territory and the weekly PMO has topped. Support at the 2019 high is seeing damage.
TLT Monthly Chart: The monthly chart also leans bearish with a declining monthly PMO. The RSI is neutral. Notice that the 20-year yield is bouncing off support and has created a reverse head and shoulders. We expect yields to continue rising and that means lower prices for Bonds.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & 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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