Whenever we see price gapping up or down, as happened with META in February, we prepare for the possibility of an island reversal. After the gap up, price forms a cluster, the island, and we ponder the possibility of a gap down to complete the reversal. During the formation of META's island news coverage was very positive, but yesterday's earnings report made investors unhappy, and META really took a dive, jumping down across the gap.
While some might have been surprised by the final resolution, the chart gave ample clues, as there were negative divergences on both the PMO (price) and OBV (volume).
There was also a PMO negative divergence on the weekly chart.
Island reversals can happen to the downside as well as the upside.
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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MARKET/INDUSTRY GROUP/SECTOR INDEXES
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THE MARKET (S&P 500)
IT Trend Model: BUY as of 11/14/2023
LT Trend Model: BUY as of 3/29/2023
SPY 5-Minute Chart: Thanks to META's badly-received earnings report, the market opened to heavy selling today, but things slowly improved throughout the day as price established a new rising trend.
SPY Daily Chart: We think there is a possibility that there was a selling climax today, but that is only because of how price performed -- gradually recovering after initial heavy selling. The only problem was that there were no climax readings, and volume was only slightly higher than average. Nevertheless, because of how price behaved, we have indicated the double bottom on the chart. It is short-term and won't be confirmed until price vaults the last top. Therefore, it may not resolve as expected. Adding to the bullish story, GOOGL and MSFT announced earnings after the close. Result: In after hours trading GOOGL up +13.5%; MSFT up +4.3%.
The VIX recovered on the day as well eventually finishing above its moving average on the inverted scale. Stochastics are still rising adding to the short-term bullish outlook.
Here is the latest recording from 4/22:
S&P 500 New 52-Week Highs/Lows: New Highs saw a slight increase as did New Lows. The High-Low Differential decelerated but is still technically rising.
Climax* Analysis: There were no climax readings today.
*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 at their core exhaustion events; however, at price pivots they may be initiating a change of trend.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERBOUGHT.
Swenlin Trading Oscillators (STOs) continued to rise in overbought territory. We do not like seeing the loss in participation which leaves both %Stocks > 20EMA and %PMOs Rising below our bullish 50% threshold.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERSOLD.
The ITBM and ITVM rose again and we did see a few more PMO BUY Signals. The PMO is sinking beneath the zero line.
PARTICIPATION: The following chart objectively shows the depth and trend of participation in two time frames.
- Intermediate-Term - the Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA). The opposite of the Silver Cross is a "Dark Cross" -- those stocks are, at the very least, in a correction.
- Long-Term - the Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA). The opposite of a Golden Cross is the "Death Cross" -- those stocks are in a bear market.
The market bias is BEARISH in all three timeframes.
We were beginning to see improvement to %Stocks > 20/50EMAs, but today they paused and retreated. This leaves the ST Bias as BEARISH. The Silver Cross Index is still declining and is below its signal line so the IT Bias is BEARISH. The Golden Cross Index hasn't lost much ground, but because it is below its signal line, the LT Bias is also BEARISH.
BIAS Assessment: The following table expresses the current BIAS of various price indexes based upon the relationship of the Silver Cross Index to its 10-day EMA (intermediate-term), and of the Golden Cross Index to its 20-day EMA (long-term). When the Index is above the EMA it is bullish, and it is bearish when the Index is below the EMA. The BIAS does not imply that any particular action should be taken. It is information to be used in the decision process.
The items with highlighted borders indicate that the BIAS changed today.
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CONCLUSION: The market finished lower but managed to avoid the heavy losses of the morning attributed to META. This midday reversal along with favorable after hours trading by GOOGL and MSFT suggest to us we may see an advance. We would still advise caution as the internals aren't showing above our bullish 50% thresholds. The Bias Table above is also looking incredibly bearish. Hedges could see more strain. Opening new positions should be done with care and stops. This rally may not last that long.
Erin is 20% long, 0% short.
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BITCOIN
The PMO is attempting to turn back up but we don't like how price was unable to test overhead resistance before topping. Stochastics have also turned lower suggesting Bitcoin is vulnerable to decline.
BITCOIN ETFs
INTEREST RATES
We heard that new 2024 highs have been reached by most of the yields. We are still looking for a test of 2023 highs.
The Yield Curve Chart from StockCharts.com shows us the inversions taking place. The red line should move higher from left to right. Inversions are occurring where it moves downward.
10-YEAR T-BOND YIELD
We got the breakout we were expecting on $TNX. It seems destined to challenge 2023 highs. The RSI is positive and the PMO is turning up above the signal line well above the zero line indicating pure strength. Stochastics are rising above 80. We expect more upside.
BONDS (TLT)
IT Trend Model: SELL as of 3/20/2024
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT is losing support and given the strength of yields it will likely continue even lower toward support at 85. The RSI is very negative, the PMO is declining and Stochastics topped in deeply negative territory. Bonds are not out of the woods.
We do see earlier support nearing at about 87.00. It isn't likely to hold.
DOLLAR (UUP)
IT Trend Model: BUY as of 1/23/2024
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar is still in danger of an island reversal which would mean a gap down move. Today saw a bearish engulfing candlestick implying lower prices again tomorrow. Stochastics have dropped below 80 and the PMO is topping. We are looking for more downside even if we don't get a gap down.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold had a nice rally, but technically hasn't recaptured the rising trend. This did flatten out of the PMO, but Stochastics are still falling.
A weak Dollar may not always be Gold's friend right now given the correlation between the two is positive. Typically they travel in nearly equal and opposite directions. Our hope is that a weak Dollar will begin to help Gold and ease this correlation. This looks like a good place for a rally, but the PMO has us tempering bullish expectations.
GOLD MINERS (GDX) Golden and Silver Cross Indexes: Gold Miners rallied strongly which only improved already good participation. The PMO should right itself soon as we see more rally ahead for GDX given the strong Silver Cross and Golden Cross Indexes.
CRUDE OIL (USO)
IT Trend Model: BUY as of 2/12/2024
LT Trend Model: BUY as of 2/27/2024
USO Daily Chart: Yesterday's comments still apply:
"Crude Oil is recapturing the rising trend after a brief foray below it. While the PMO isn't rising, Stochastics are and the RSI is positive. We like the Crude Oil trade right now on this reversal off the 50-day EMA."
The minimum downside target of the bearish double top has been reached and price is moving higher now. We'd like to see overhead resistance broken.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl 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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