Today in the DecisionPoint Diamonds Recap Health Care (XLV) was the sector to watch going into next week. XLV saw the 20-EMA cross above the 50-EMA triggering an IT Trend Model "Silver Cross" BUY signal. It appears poised to continue its breakout above the mid-September highs. The RSI is positive and the PMO just entered positive territory above the zero line. The SCI was concerning this week, but it is turning back up. Participation, as within the SPX, was waning but it turned around as it finished the week. Readings of %Stocks > 20/50-EMAs are higher than the SCI reading which gives us a short-term bullish bias. The GCI is nearing a positive crossover and is at a healthy (no pun intended) reading of over 76%. Within Healthcare, the strongest groups appear to be Pharmaceuticals and Biotechs. The Pharma chart is below the sector chart.
Pharmaceuticals are on a nice rising trend and are about to see a "Silver Cross" BUY signal of their own. The PMO has entered positive territory and the RSI is rising above net neutral (50). Stochastics have turned around, oscillating above 80 which implies internal strength.
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: XLY is the clear winner on the daily RRG, however, those in the DP Diamond Mine trading room know that the technicals under the surface are suspect. I'm not saying its run is over, just that it could be cooling. XLK and XLRE while not traveling in the bullish northeast heading are still firmly planted in Leading. XLU was the one to watch last week. It's relative strength has begun to wane and it is now close to hitting the Lagging quadrant. XLV looks excellent with its bullish northeast heading. It appears that the areas of prior strength, XLI, XLB, XLE and XLF are moving out of favor.
RRG® charts show you the relative strength and momentum for a group of stocks. Stocks with strong relative strength and momentum appear in the green Leading quadrant. As relative momentum fades, they typically move into the yellow Weakening quadrant. If relative strength then fades, they move into the red Lagging quadrant. Finally, when momentum starts to pick up again, they shift into the blue 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 10/18/2021
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: The market has printed new all-time highs again. Total Volume was elevated today which is bullish on a rally day (as long as it isn't a climax day which it was not).
The RSI is positive and the PMO is still rising out of an oversold BUY signal.
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SPY Weekly Chart: The weekly PMO has turned up which confirms these new all-time highs.
SPY Monthly Chart: We still see a parabolic advance on the monthly chart. When these breakdown it can happen swiftly and generally with a very painful decline. The monthly RSI is overbought, but that doesn't seem to be a problem typically.
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 and GCI are a long way from where an overbought condition would interfere with the continuation of the rally. The potential for the rally to continue is also strong based upon the potential for seasonal pressures (Santa Claus rally).
We do see a negative divergence between price tops and participation tops.
New Highs expanded today, but we can still observe a declining trend while price is rising. A topping 10-DMA of the High-Low Differential can be a sign of a market possibly topping, but we saw a similar reading In June and August and it didn't result in much damage at all.
Climax Analysis: SPX Total Volume exceeded the one-year daily average, but there are no other signs of climactic activity today. This week saw two climax days. First was Wednesday, a downside initiation climax. We didn't see a decline from that climax, instead it was followed by an upside initiation climax. Given the downside initiation didn't catch and we are seeing higher prices off yesterday's upside initiation climax, the market is poised to continue higher.
*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.
The STOs have been declining for the past two weeks but it hasn't resulted in any short-term price damage. Participation is slipping, but we still have well over half of the SPX with rising momentum. That's enough to hold price up.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM/ITVM paused to finish the week. They are overbought right now, but we've certainly seen higher readings. Of concern would be the decline in PMO BUY signals. Today there was a negative crossover on that indicator. 70% is still a percentage that could keep the market away from a big decline.
Bias Assessment: The rising SCI at 60% is slightly lower than participation numbers. There is room for it to improve, but not by much unless participation starts to improve further. This gives us a slightly bullish bias in the short term. this GCI is beginning to rise a bit, but given its reading above 82% (overbought), there is a sufficient long-term foundation to keep prices moving higher.
CONCLUSION: There is a new free article on DecisionPoint.com that talks about the possibility of a "melt up" in stock prices. Here is the link. A 'melt up' would see participation expand. The STOs and dropping PMO BUY signals are concerns and a situation we will be monitoring closely next week. But given the improving SCI and GCI with bullish readings, along with a positive PMO and RSI, we are bullish moving into next week.
Calendar: (1) An FOMC meeting is next week with the announcement on Wednesday. (2) A six-month period of favorable seasonality begins next week. The unfavorable six-month period just ending saw the market advance about 10%. So much for seasonality.
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We saw a possible bearish head and shoulders forming on Bitcoin, but it failed to confirm when price bounced the last two days. Now we see a bullish flag formation that implies Bitcoin will breakout not down. The PMO is on a crossover SELL signal, but it is already decelerating. The RSI avoided negative territory and is rising again. Stochastics have halted the decline. Look for an upside breakout soon.
Yields fell this week with longer-term yields challenging support at August highs.
10-YEAR T-BOND YIELD
While the decline in the 10-year yield was swift and deep to begin the week, $TNX is still traveling within a rising trend channel. Stochastics are very negative and the PMO is on a SELL signal. There is a high likelihood we will see this rising trend broken, but there are plenty of support levels that could prevent a large decline.
MORTGAGE INTEREST RATES (30-Yr)
We want to watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. (See table.) As mortgages are forced to shrink, real estate prices will have to fall, and many sellers will increasingly find that they are upside down with their mortgage.
It has been a while since we looked at this section. The 30-year rate is on the way to setting a rising trend. It just needs to exceed the March top to confirm a large bullish double-bottom.
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar rallied strongly keeping the intermediate-term rising trend intact. The chart is looking more bullish as the RSI has pushed into positive territory and the PMO has bottomed. Stochastics are very positive right now too. Prepare for another trip to test the top of the bearish rising wedge.
UUP Weekly Chart: UUP is struggling to push past overhead resistance at the March high. We've been watching a bullish double-bottom pattern, but the longer it takes for price to get above the confirmation line, the less likely we will see the follow-through the pattern suggests. The weekly PMO has decelerated but is still rising alongside a positive weekly RSI.
UUP Monthly Chart: The monthly chart for UUP is quite favorable given the positive RSI and now rising monthly PMO. The long-term rising trend is intact and we have a bullish crossover of the 6/10-month EMAs. The next area of strong resistance is at $26.
IT Trend Model: BUY as of 10/28/2021
LT Trend Model: SELL as of 8/9/2021
GOLD Daily Chart: Gold had just triggered a Silver Cross BUY signal and now it is already in jeopardy. The RSI is still positive but today the PMO topped. Stochastics are also bearishly configured. Discounts are trending lower meaning investors are less bearish on Gold, but given today's decline, that could change.
The rising trend channel was compromised with today's drop.
GOLD Weekly Chart: The weekly chart shows us that the long-term declining trend is still in place. Thrice it has attempted to test that declining tops trendline and it has failed to reach it. The weekly RSI turned down before reaching above net neutral (50). The weekly PMO is technically rising, but isn't that encouraging given the failed rallies.
GOLD Monthly Chart: The monthly chart is mixed. The monthly PMO is on a SELL signal but is flattening. The monthly RSI is still positive. We could be looking at a bull flag, but that flag is a bit long in the tooth. Good news is that the correlation between Gold and the Dollar is getting less negative, meaning Gold could begin to travel higher even if the Dollar is rallying. For now, it is still a strong inverse relationship, it just may be improving somewhat.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners were a casualty to declining Gold prices. Today GDX gapped down below both the 20/50-EMAs and closed on its low. Participation has plummeted to well below the SCI reading, giving us a short-term bearish bias. The "Silver Cross" is likely to disintegrate next week as it appears price will be moving down to test support given the topping PMO and negative RSI.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/3/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil pulled back this week, but remains within a bullish rising trend channel. The 20-EMA was also sturdy. While the RSI is positive, the PMO has just had a negative crossover. Stochastics are moving lower suggesting more downside. There are also rumblings of an increased supply from Russia and OPEC. The rising trend is tenuous.
USO/$WTIC Weekly Chart: In the longer term, USO looks healthy given the rising weekly PMO and positive RSI. However, gap resistance is now being met and that could pressure prices lower.
WTIC Monthly Chart: The monthly chart is very favorable suggesting any decline in the short term shouldn't last long. $WTIC has now punched above overhead resistance. The monthly RSI is positive and not overbought and the weekly PMO, while overbought, is rising strongly.
IT Trend Model: NEUTRAL as of 10/1/2021
LT Trend Model: SELL as of 10/21/2021
TLT Daily Chart: TLT rallied this week as long-term yields dropped. Price broke above overhead resistance and the 50-EMA. Currently it is beginning to consolidate sideways. The indicators are very positive. The 20-year yields is still holding above support. A breakdown would propel TLT higher.
We can see on the one-year chart that TLT is now confronting strong overhead resistance at the January low. However, given the favorable RSI, PMO and Stochastics, we should see a breakout here eventually. We'll know more next week after the Fed meeting.
TLT Weekly Chart: The weekly chart is also quite favorable with a positive RSI and a weekly PMO that is reversing off the zero line.
TLT Monthly Chart: The monthly chart isn't that bullish. There is a positive monthly RSI, but the monthly PMO is falling and is that a possible bearish head and shoulders forming? It's too early to tell, but if price doesn't breakout here that would put a head and shoulders in play.
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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