We're bringing the 5-month candlestick chart to the top of today's Weekly Wrap. Yesterday we had an upside exhaustion climax. We expected price to begin moving sideways, but today saw a gap up. Yesterday's breakout from the falling wedge was quite bullish, but it was accompanied by an upside exhaustion climax. Now we have a second gap that could be viewed as an "exhaustion gap". An exhaustion gap is a technical pattern and not related to an upside exhaustion climax.
The unfortunate problem with price gaps is that you really can't identify what kind of gap you have until they resolve the next day(s). Given this is the second gap up, there is a high likelihood it is an exhaustion gap rather than a "runaway gap" which implies follow-through on the breakout. The VIX is also hinting that this will prove to be an exhaustion of the current move higher in the very 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
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 and XLF dropped out of the sky today. They were already headed toward Weakening, but now XLF has reached the quadrant. XLB, XLI and XLP are now within Leading. XLP is very close to the center (the SPX) so relative strength is mostly nil and it hasn't really moved anywhere all week. Interesting sectors moving forward? XLRE and XLK are making moves. XLU is traveling in the bullish northeast heading, but be leery of this sector given the high cost of energy.
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: NEUTRAL as of 10/4/2021
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: For this week's options expiration we expected low volatility at the end of the week, by which we usually mean Thursday and Friday. As it turns out, the market moved in a range of about 2.5% from Wednesday's close, perhaps more volatile than if price had remained inside the falling wedge, but still not terribly explosive. The 20-EMA is about to cross above the 50-EMA. Unless price dips below the 20-EMA, we will see an IT Trend Model "Silver Cross" BUY signal on Monday.
The PMO is now on a crossover BUY signal and the RSI is positive. Stochastics look positive as we see %K trending higher. It is ready to reach overbought territory, but still the picture is bullish.
SPY Weekly Chart: The weekly PMO is still in decline, but we are seeing some deceleration. Price broke down from the rising wedge, but appears ready to move higher. The weekly RSI is positive.
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 had a positive crossover its signal line and the GCI held up its decline today, keeping the same reading as yesterday.
Participation is improving, but we note that %Stocks > 20-EMA is reaching overbought territory. %Stocks > 200-EMA lost ground.
New Highs spiked today, but we didn't have a climax day. This adds fuel to the likely buying exhaustion climax that triggered yesterday.
Climax Analysis: Readings didn't pass the climax thresholds today. The VIX is what has us looking at today's gap as an exhaustion gap. Typically when the VIX penetrates the upper Bollinger Band on the inverted scale, we see price pullback or at least begin to move sideways.
*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 UP and the condition is NEUTRAL to OVERBOUGHT.
The STOs moved higher today with the STO-B hitting somewhat overbought territory. The STO-B did rise, but reading is neutral. Notice the declining tops on the STOs that are in divergence with price tops. Never a good sign. On the flip side, we do have 80% of the SPX with rising momentum which does support higher prices in the short term.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITVM hit positive territory for the first time since early September. This bodes well. We also saw an increase in PMO BUY signals within the SPX; in fact, more than 60% now have PMO BUY signals. That can support higher prices.
Bias Assessment: The intermediate-term bias is bearish because the SCI shows only 45% of SPX stocks have the 20EMA above the 50EMA. The GCI is at 83% showing the long-term bias to be bullish. When comparing participation percentages of stocks > 20/50-EMAs to the SCI, we can see that those percentages are much higher and that implies we will continue to see the SCI move higher and that is bullish.
CONCLUSION: We notice that all 11 SPX sectors have formed bottoms or are more positively configured. This could be reversed quickly, of course, but for the moment that is a plus. (Click here for our for our Sector Chart List with Carl's annotations.) Also pluses: PMO BUY signal, positive RSI, nearing "silver cross" on the SPY, rising Stochastics and participation indicators. This could be an exhaustion gap that is punctuating yesterday's upside exhaustion climax. Overall there is no denying the internal strength of the market. With this in mind, we expect a pause or digestion period next week based on the VIX and exhaustion gap.
Erin is 70% exposed to the market.
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We cannot presently display volume on this chart because inconsistencies in crypto currency data last week (note the spike where volume should be). This is being worked on. In the meantime we have added Stochastics to give us additional insight. Today's strong breakout above 60,000 suggests all-time highs will at least be tested, if not overcome. The RSI and Stochastics are overbought, but overbought conditions can persist in a strong rally like Bitcoin's.
This week saw a pullback in interest rates in the long term. However, we are already seeing a reversal.
10-YEAR T-BOND YIELD
After breaking down from a very tight rising wedge formation, a rising flag formation has materialized. The PMO had topped and Stochastics are still unfavorable, but given this new rising trend channel that forms the flag, we expect to see them rise next week.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar has been directionless overall this month. Support is being held, but we have a bearish rising wedge to contend with. Additionally, the PMO is about to trigger a crossover SELL signal. Stochastics are falling fast. The 20-EMA and support at the August top won't likely hold up.
UUP Weekly Chart: The weekly chart looks far less bearish as price broke out three weeks ago from a bullish double-bottom pattern. The RSI is beginning to fall, but the weekly PMO hasn't sustained any damage. We don't have a "decisive" (3%) break above the confirmation line, so the pattern could bust.
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GOLD Daily Chart: Gold finally broke out and even ventured briefly above the 200-EMA. Today it fell heavily and closed just below the 20-EMA. The double-bottom pattern doesn't have to be scuttled yet. The rising trend out of the second bottom is still holding.
We don't see the double-bottom on the $GOLD chart due to the "pinocchio" bar that stretched to support at the March lows. Martin Pring coined the term "pinocchio" bar. He says:
Exhaustion also shows itself in other forms. I call these "Pinocchio bars" because they temporarily give us a false sense of what is really going on. They are bars in which the bulk of the trading takes place outside the previous and subsequent trading ranges and that therefore give a false impression of a breakout.
..Or a breakdown in the case of Gold. If we take the close of that day instead of the intraday low, the double-bottom pattern is there.
GOLD Weekly Chart: The weekly chart is still negative. The weekly RSI and PMO are configured negatively. Price is in a declining trend and forming a bearish descending triangle. We still are bullish on Gold in the shorter term, but we are tempering our expectations based on the weekly chart.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners declined, likely under pressure from Gold prices. This decline also comes as price was about to test overhead resistance. However, the internals are still very bullish, so we will likely see a breakout.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/3/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: USO continues to march higher. We saw only one decline this week as price held onto the steepest rising trend. The indicators are all overbought right now. Note that Stochastics have held in overbought territory for about two months. The RSI can do the same.
While the PMO may appear to be overbought on the 6-month candlestick, we can see that earlier this year it had readings above 6.0. We expect to see Crude Oil prices continue to trend higher.
USO/$WTIC Weekly Chart: Gap resistance is arriving for USO, but with the breakout on $WTIC, we expect USO will close the gap. The weekly RSI is overbought, but the weekly PMO just gave us a crossover BUY signal.
IT Trend Model: NEUTRAL as of 10/1/2021
LT Trend Model: BUYas of 8/6/2021
TLT Daily Chart: TLT tested overhead resistance this week at the 50/200-EMAs. It wasn't a successful test. Price is pulling back as interest rates began to rise again today. Stochastics are still positive, but the PMO is topping below its signal line, the RSI is topping below net neutral (50) and finally, we are about to see a "death cross" LT Trend Model SELL signal. The rally is likely finished for now.
Had price broken above those key moving averages, we would be more bullish.
TLT Weekly Chart: The weekly chart is bearish. The topping PMO and negative crossover on the 17/43-week EMAs suggest TLT could test support at $131.
TLT Monthly Chart: Notice the bounce of the 20-year yield in the bottom window. This comes off very strong support and is forming a reverse head and shoulders.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & Erin Swenlin
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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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