Last Friday we had a downside exhaustion climax that implied we could see price begin to rise again. It doesn't tell us how long it will rise and we could end up seeing churn rather than a concerted uptrend. However, today we did see prices rise and spoiler alert, we got an upside initiation climax. The 10-minute PMO has turned back up and Stochastics are rising strongly so it wouldn't surprise us if we did see some follow through on today's rally.
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MARKET/INDUSTRY GROUP/SECTOR INDEXES
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THE MARKET (S&P 500)
IT Trend Model: BUY as of 8/14/2024
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: The rally didn't get the PMO to turn up today. It remains on a Crossover SELL Signal. Price is still in a defined declining trend in spite of today's rally.
One big problem is the development of a bearish double top on the SPY. The confirmation line is all the way down to the August low. This pattern would imply a decline from the confirmation line that is the height of the pattern. That would be a deep decline toward 440. We aren't that bearish yet, but it isn't out of the question.
The VIX remains below its moving average on the inverted scale and Stochastics are below 20. There is still a problem with internal weakness.
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S&P 500 New 52-Week Highs/Lows: We did see New Highs but not close to where they have been. Not a surprise given the deep decline last week. New Lows pared back as we would expect on a rally day. The High-Low Differential continues to push downward which is bearish for the market in general.
Climax* Analysis: On Friday we got a downside exhaustion climax. Today there were climax readings on three of the four relevant indicators, so we have an upside initiation climax, in which case there could be more upside price movement.
*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 NEUTRAL.
We're listing the Swenlin Trading Oscillators (STOs) as "neutral", but they are getting close to near-term oversold readings. Both are still declining. Participation did see some expansion today as we would expect, but readings are still rather low. It is good to see that at least one-third of the index are holding rising PMOs. We need more.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
We still see the ITBM and ITVM as overbought. They are declining and unwinding and suggest that the decline may not be over in the intermediate term. The double top combined with these indicators have us cautious still. We have less than 50% of the index with PMO BUY Signals and it is declining. We'll need to see more than 33% rising PMOs in order to reverse the indicator higher.
PARTICIPATION CHART (S&P 500): The following chart objectively shows the depth and trend of participation for the SPX 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 the intermediate term.
The market bias is BULLISH in the long term.
Today the Silver Cross Index dropped beneath its signal line (Bearish Shift) which moved the intermediate-term bias to BEARISH. We still have 71% with silver crosses (20EMA > 50EMA) which is a healthy and not overbought number. The Golden Cross Index is still declining but remains above its moving average so the LT Bias is BULLISH for now.
We do note that there are positive divergences detectable on this chart with all of the indicators so there is a chance that we could get an upside reversal of the current declining trend. That would be good as a move to all-time highs would negate the bearish double top formation. There is still lots of work to do.
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: Friday's downside exhaustion climax played out as expected with a rally. It was a forceful enough rally to get climax indicators to pop once again leaving us with an upside initiation climax. Putting these two climaxes together, we have to look for more follow through on today's rally. We do have to temper expectations given the STOs are still declining in negative territory. It doesn't help that today saw a Bearish Shift on the Silver Cross Index. We may get more rally but it could just offer temporary relief, not the start of a new leg up to all-time highs. We are cautiously optimistic. Economic reports will start to pop on Wednesday with the CPI report followed by PPI and jobs report on Thursday. These could put a damper on the rally if reports are deemed negative to a soft landing.
Erin is 25% long, 0% short.
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CALENDAR
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BITCOIN
Bitcoin is reversing off support after a positive weekend of trading. The PMO has started to turn up so we could see more follow through to the upside. We just won't get overly bullish given the declining trend is still intact.
BITCOIN ETFs
INTEREST RATES
Yields were mixed on the day. They lost support at prior 2024 lows and are now headed to test the next level of support at 2023 lows. There is a good chance we will hit that level given upcoming rate cuts by the FOMC.
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 looks bearish. It may be holding support right now, but given the PMO SELL Signal well below the zero line, we doubt this level will hold.
BONDS (TLT)
IT Trend Model: BUY as of 6/5/2024
LT Trend Model: BUY as of 7/17/2024
TLT Daily Chart: TLT is breaking out and given the bearish look on yields, we would expect more upside out of TLT. The PMO is flat above the zero line and on a new Crossover BUY Signal. This signals pure strength. Stochastics are above 80 and as far as the RSI is concerned, price is not yet overbought.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 8/5/2024
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar is very indecisive right now but it is making its way higher again. It is set up well for a breakout here given the PMO Crossover BUY Signal and rising Stochastics.
Price is still in a declining trend so we can't get that bullish yet.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold is in a holding pattern and expect this will continue. Indicators are all flat and moving sideways. Stochastics are positive as is the RSI which is why we aren't thinking we'll get a big decline, but with the weak PMO is seems likely that price will stay bounded.
GOLD MINERS (GDX): Gold Miners enjoyed a rally on Gold's back as well as finding the wind at their backs given the market's rally today. The declining trend is still intact, but we have to note that participation as far as the Silver Cross Index and Golden Cross Index are reading at bullish levels. %Stocks > 20EMA is at zero and clearly oversold. There is still much work to do to turn this around and with Gold likely to remain in a holding pattern, GDX will be subject to the winds of the market. Right now that seems a good thing. It does seem a bit early to get on board with Miners. Downside risk is still high.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 8/1/2024
LT Trend Model: BUY as of 2/27/2024
USO Daily Chart: USO rallied mildly today. The RSI and PMO are still very negative. Stochastics are very negative below 20, but they did turn up on the rally.
This doesn't seem the best area to look for a reversal. $OVX is puncturing the lower Bollinger Band and that can often times lead to a rally, but it hasn't really made a difference is price direction yet. We still see Crude Oil as weak and likely to move lower toward the strong support level at 64.00.
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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