I don't like to open with the same chart as I did the previous day, but I think this one does deserve a second look. Last night I had noted on the 5-minute candlestick chart of the SPY that there was a rounded bottom and remarked that while the PMO had finished the day in positive territory, after hours trading revealed a declining PMO.
Today, price bottomed and began to erase some of the day's losses. The 5-minute PMO has turned up again and has given us a crossover BUY signal. However, the 5-minute RSI is acting wishy washy. Given the strongly rising PMO I would have expected the RSI to confirm, but it really hasn't. We also have high negative volume to close out the day.
After hours trading today reveals a rising PMO in positive territory and a positive RSI. Additionally we have a tiny breakout and pullback to the breakout point. I'm not particularly bullish given the PMO is trying to decline again, but at least the RSI is staying positive. I'll talk about the VIX more, but it is configured bullishly so rather than a decline, the market may simply pause.
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MAJOR MARKET INDEXES
SECTORS
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: XLY is now traveling in the bearish southwest direction, but it is still in Leading. The strongest sectors on the RRG are XLC, XLI, XLB and XLP. All are moving in the bullish northeast direction with XLB likely to hit Leading tomorrow.
CLICK HEREfor 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: Selling continued today activating the bearish rising wedge. Support is arriving at the 20-EMA. The RSI has now moved out of overbought territory, but the PMO has topped suggesting the decline is likely to continue.
Stochastics are falling but remain in positive territory. Note that price hit the top of the intermediate-term rising trend channel and is headed toward support. The VIX finished the day well below the lower Bollinger Band on our inverted scale. I'll talk more about that in the "Climax Indicators" section.
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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 is continuing to rise despite the decline which is bullish. The GCI has now turned down, but remains above its 20-EMA.
S&P 500 New 52-Week Highs/Lows: New Highs contracted again, but we note the 10-DMA of the High-Low Differential is decelerating which is generally bullish.
Climax* Analysis: Today was not a climax day. Typically when we see the VIX puncture its lower Bollinger Band it leads to a day or two of higher prices or in this case, it could mark a pause in the decline rather than a rally day. Total Volume was higher on the day, but remains below its annual average.
*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.
STOs continue to decline suggesting the market will also decline. Notice the disintegration of positive momentum within the SPX stocks. Positive momentum is needed to fuel higher prices.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM/ITVM topped today and fewer stocks have PMO BUY signals.
Bias Assessment: The short-term bullish bias is deteriorating. Only 70% have price above the 20-EMA which is the same reading as the SCI. It will be difficult, if not impossible, for the SCI to continue to move much higher. The intermediate-term and long-term biases are still bullish given readings for the SCI and GCI are above 65%.
CONCLUSION: The market is weak and indicators are getting weaker. We would look for price to test the 20-EMA soon. On the bright side, seeing the VIX move below its lower Bollinger Band is positive as that typically leads to higher prices in the next day or two. However, given the declining indicators and the deterioration of the short-term bullish bias, more than likely this will lead to a pause rather than a rally with staying power. Tighten stops or consider booking some profits.
I am 75% exposed to the market with 25% being in cash and readily available to trade.
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BITCOIN
Bitcoin pulled back after reaching new all-time highs. Support at the 20-EMA is intact and the RSI remains positive. Additionally, the PMO has decelerated but hasn't topped yet. Given the negative OBV divergence, this decline could continue, but support at $60,000 still looks sturdy.
INTEREST RATES
Yields rebounded strongly and appear to be headed much higher. However, we do still see declining trends in longer-term yields.
10-YEAR T-BOND YIELD
$TNX bounced off the rising bottoms trendline and nearly broke through the short-term declining trend. Given the newly positive RSI and bottoming PMO, rates are likely to break the declining trend.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP opted not to test the 50-EMA and instead is bouncing off the 20-EMA. Price broke above the short-term rising wedge which is especially bullish. The PMO triggered a new crossover BUY signal today and the RSI is rising strongly in positive territory. Stochastics have also reversed direction.
The intermediate-term bearish rising wedge is still intact, so the longer-term bias is still somewhat negative.
GOLD
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: BUY as of 10/28/2021
GLD Daily Chart: Despite the rally in the Dollar, Gold rallied strongly. We now have a breakout on GLD accompanied by a bullish RSI and PMO. Stochastics are somewhat worrisome, but they remain above 80 which is still bullish overall.
(Full Disclosure: I own GLD as a "buy and hold" position.)
GOLD Daily Chart: Discounts are beginning to contract which tells us that investors are getting bullish on Gold again. We would expect this rally to continue with overhead resistance at the June top tested.
GOLD MINERS Golden and Silver Cross Indexes: The reverse head and shoulders nearly saw the neckline broken. The RSI is positive and rising and the PMO is rising. Participation is expanding suggesting we will see the reverse head and shoulders confirmed with a minimum upside target landing close to the May highs.
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 strongly causing price to fall back into its short-term declining trend. The PMO has now topped below its signal line which is especially bearish.
However, we still have a bullish flag. After breaking out it has pulled back to the breakout point. It does appear that the 50-EMA will need to be tested again before we get a confirmed breakout from the flag.
BONDS (TLT)
IT Trend Model: BUY as of 11/8/2021
LT Trend Model: BUY as of 11/4/2021
TLT Daily Chart: After hitting overhead resistance, TLT pulled back strongly as the 20-year yield rallied aggressively. The PMO is topping, as are Stochastics. Yields appear ready to rally higher and that will pressure Bonds lower.
For now the 20-EMA is holding as support and the 50/200-EMAs are readily available as support too. However, the chart is breaking down and yields are poised to move even higher.
Technical Analysis is a windsock, not a crystal ball.
--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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