We were looking at some of our primary charts in the DPA ChartList* and came upon this very strong negative divergence on the Advance-Decline Line for the Nasdaq Composite ($COMPQ). This has been in effect for some time and so far we only saw the big 2023 decline (which was preceded by its own negative divergence with price). This is an additional piece of evidence that we are getting big moves higher with less participation. We see this as one of many caution flags.
*You have access to the DPA ChartList on our website. You'll find the ChartList links at the top of the lefthand menu on the Blogs and Links page. We also have the "Under the Hood" and ETF Tracker ChartLists available.
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.
Watch the latest episode of DecisionPoint on our YouTube channel here!
MARKET/INDUSTRY GROUP/SECTOR INDEXES
CLICK HERE for Carl's annotated Market Index, Sector, and Industry Group charts.
THE MARKET (S&P 500)
IT Trend Model: BUY as of 11/14/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: Price did hold above near-term support, but this rounded top looks dangerous. The PMO is in decline and holds a negative divergence with price tops. Additionally, the OBV has a large negative divergence in play.
The VIX tumbled on our inverted scale as volatility kicks up a notch. It is below its moving average and that is a sign of weakness. Stochastics are in decline below 80 which also implies some internal weakness.
Here is the latest recording from 5/20 (No recording on 5/27). Click HERE to subscribe to the DecisionPoint YouTube Channel to be notified when new content is available.
S&P 500 New 52-Week Highs/Lows: New Lows are now at a level that we haven't seen since 2023 and they continue to expand. The High-Low Differential is on a decline and also sports a negative divergence like New Highs.
Climax* Analysis: On Friday we had a downside initiation climax followed this week by two days of churn. Today there were strong, unanimous climax readings, giving us a downside exhaustion climax. We are inclined to believe this will lead to more downside because it appears that the decline has just begun.
*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 UP and the condition is OVERSOLD.
Swenlin Trading Oscillators (STOs) are now in oversold territory. However, there is plenty of room for them to continue lower and accommodate more downside. Participation sprung a leak and is getting very near oversold levels. We only have 14% of the index holding rising momentum. There aren't many stocks left to preserve a rally.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM and ITVM continue lower and have reached neutral territory in our minds. %PMO Xover BUY Signals is dropping steeply and hasn't hit oversold territory yet. They definitely can accommodate more downside price movement. Let's also not forget we have negative divergences in every indicator window.
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 time frames.
Assuming that the market is not going to reverse to the upside, the Silver Cross Index is set to drop to 35%, probably lower. Participation is very thin across the board and that lends to the ST BEARISH Bias. Both the Silver Cross Index and Golden Cross Index are below their moving averages and based on thin participation they will continue lower. This sets up the IT and LT BEARISH Biases.
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.
**************************************************************************************
CONCLUSION: All of the market indexes traveled lower in unison. While support is being held in the very short term, we expect to see the market continue lower. We do have a downside exhaustion climax today but it seems more like a continuation of the previous downside initiation climax given the market now has a rounded top. Primary indicators are all in decline and those pesky negative divergences set up the market for a more concerted decline that could bleed into the intermediate term given IT indicators aren't oversold yet. Stay vigilant and cautious. Hedges aren't a bad idea.
Erin is 30% long, 8% short.
**************************************************************************************
Have you subscribed the DecisionPoint Diamonds yet? DP does the work for you by providing handpicked stocks/ETFs from exclusive DP scans! Add it with a discount! Contact support@decisionpoint.com for more information!
BITCOIN
We now see a short-term double top formation that implies we will see a breakdown below the 20-day EMA. So far the rising trend is holding up, but given the now declining PMO and Stochastics, we think Bitcoin is vulnerable.
BITCOIN ETFs
INTEREST RATES
Yields continued to rise and appear to be headed back to 2023 highs. Bonds continue to feel the heat.
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
$TNX shot higher today after a good rally yesterday. The indicators have matured. The RSI is positive and not yet overbought. The PMO is nearing a Crossover BUY Signal and Stochastics are now rising above 80. We expect the April top will be successfully tested as it makes its way back toward the 2023 high.
BONDS (TLT)
IT Trend Model: SELL as of 3/20/2024
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: The 20-year yield jumped higher today and that caused TLT to tumble lower. This appears to be a breakaway gap to the downside. The PMO has topped and is nearing a Crossover SELL Signal below the zero line. Stochastics are very negative. We expect the April low to be tested.
The decline came right on the declining tops trendline.
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 managed to hold its rising trend with a nice rally today that took price above the 20-day EMA. Stochastics have reversed higher. The PMO isn't giving us any clues. Based on Stochastics, we will look for more upside, but until the PMO rights itself, it could just result in churn.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold fell on the rising Dollar and then some. It lost relative strength today as it was down much further than the Dollar was up. The double top is the concern. It lends a bearish bias to the chart. The RSI did just move back into negative territory and technically the PMO is still in decline.
Stochastics are turning up, but not enough for us to get bullish.
GOLD MINERS (GDX): The rising trend remains intact on GDX, but it is very vulnerable given the PMO Crossover BUY Signal and the dip in participation. Gold does not look healthy and neither does the market. Both of those will weigh heavy on Gold Miners. Be very careful with this group, it is leaning bearish. They had a good run, now it is time for a pullback or possible correction.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 5/20/2024
LT Trend Model: BUY as of 2/27/2024
USO Daily Chart: Crude Oil has broken out and we are looking for more upside to follow. The PMO is nearing a Crossover BUY Signal and Stochastics are on the rise in spite of today's pullback. We do note the PMO is very flat below the zero line which might lead to more sideways movement.
We have what looks like a triple bottom on the 200-day EMA. This bullish chart pattern also suggests higher prices for USO.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
(c) Copyright 2024 DecisionPoint.com
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.
DecisionPoint is not a registered investment advisor. Investment and trading decisions are solely your responsibility. DecisionPoint newsletters, blogs or website materials should NOT be interpreted as a recommendation or solicitation to buy or sell any security or to take any specific action.
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.
Helpful DecisionPoint Links:
DecisionPoint Alert Chart List
DecisionPoint Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)