Friday ended with the market nearly making all-time highs, and raising hope that that would happen this week. Unfortunately, the first trading day in September brought a selloff, indicating that this seasonally negative month may once again live up to its reputation.
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 8/14/2024
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: Price fell precipitously and took out the first support level. It held the next support level but it looks highly vulnerable. The PMO turned down today.
The VIX spiked and dropped below its moving average on the inverted scale. This is a sign of weakness. Stochastics dipped below 80 today. We note that mega-caps are the culprit of this malaise the market has been in based on the falling relative strength line to equally-weighted RSP.
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S&P 500 New 52-Week Highs/Lows: New Highs were quite visible even on today's decline, but as we often say, these are intraday readings and could've finished the day with far fewer. The High-Low Differential is rising strongly still, but is very overbought.
Climax* Analysis: On Friday we had what qualified as an upside initiation climax, but premarket activity this morning demonstrated that there would be no upside follow through. This is a case where we must remember that climaxes are, at their core, exhaustion events that can sometimes signal a change of trend. That was our assumption on Friday, but it is now apparent that Friday was a blowoff and a bull trap. Today there were three climax readings on the four relevant indicators, giving us a downside initiation climax.
*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.
Both Swenlin Trading Oscillators (STOs) fell on today's action with the STO-V entering negative territory. Participation really took a hit, particularly the loss of rising momentum. Only 50% now have PMOs on the rise.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM and ITVM were mixed with the ITBM moving higher and the ITVM moving lower. Both are very overbought, but we do note those positive divergences. They don't look as bullish as they previously did given today's decline. We may need to see more decline before those actually play out with a move to new all-time highs.
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 BULLISH in the intermediate and long term timeframes.
Participation percentages are all above our 50% bullish threshold, but as noted earlier, participation took a big hit today. %Stocks > 20EMA were already overbought, it has released that condition for now. The Silver Cross Index is still inching higher, but if we lose more participation as we did today, it will be making its way lower soon. It remains above its signal line so the IT Bias is BULLISH. The Golden Cross Index topped today and will likely continue to lose ground given we have about the same amount of stocks above their 200-day EMA. The Golden Cross Index is above its signal line so the LT Bias is BULLISH.
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: We found out the hard way that Friday was setting the table for a bull trap. Indicators weren't particularly enlightening going into this decline as indicators and participation did look healthy. Now we are seeing quite a bit of damage done to price and that in turn got our STOs to turn lower. The PMO has also topped. Weakness has clearly seeped into the market and now we are starting to see damage to participation with just one big decline. The market is highly vulnerable right now particularly given the poor showing by mega-caps. The rest of the market appears to be breaking based on participation and given today's downside initiation climax we should expect lower prices ahead.
Erin is 40% long, 0% short.
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CALENDAR
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BITCOIN
Bitcoin has found some support, but given the ugly setup on the PMO and particularly on Stochastics, we aren't so sure this support level will hold. This is a good place to look for a bounce, but indicators simply aren't behind a rally.
BITCOIN ETFs
INTEREST RATES
Yields have been moving sideways for some time right along prior support. They look vulnerable to more decline and given the FOMC move to lower rates this month, we would look for them to consolidate with a melt lower.
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 is in consolidation mode, moving mostly sideways along support. The PMO is already trying to top, but Stochastics haven't fallen apart yet so we should look for more sideways movement.
BONDS (TLT)
IT Trend Model: BUY as of 6/5/2024
LT Trend Model: BUY as of 7/17/2024
TLT Daily Chart: TLT took advantage of the 20-year yield's decline and rallied strongly. The RSI is positive, but both the PMO and Stochastics are moving sideways. Yields look to be in consolidation mode so we will look for the same out of Bonds.
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 rallying and it has completely changed the face of the indicators. The OBV is soaring higher and there is a new PMO Crossover BUY Signal on tap. The RSI and Stochastics are rising so we are looking for more upside. However, we do note that a resistance zone has been met so we wouldn't be surprised if we get a stutter step lower from UUP.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold is topping out and given the bullish look of the Dollar, we would look for more downside movement. The PMO is nearing a Crossover SELL Signal and Stochastics have dropped below 80. We can make out a small double top on price right now too.
The correlation between Gold and the Dollar is a strong inverse right now so a rising Dollar will indeed be a problem for Gold prices.
GOLD MINERS (GDX): We were looking at a bull flag formation on GDX, but the flag has now gotten a bit too extended. The indicators have all moved south and participation disappeared for %Stocks > 20-day EMA. The Silver Cross Index has dropped beneath its signal line giving GDX a Bearish Bias in the intermediate term. The rising Dollar will likely continue to wreak havoc on this area of the market.
CRUDE OIL (USO)
IT Trend Model: BUY as of 6/21/2024
LT Trend Model: BUY as of 2/27/2024
USO Daily Chart: Last week we found out the OPEC+ was going to loosen production. A higher supply means lower prices. We think that this would be a good level to look for a reversal, but OPEC+ news has us looking for a breakdown here. The PMO triggered a Crossover SELL Signal below the zero line and Stochastics are still falling. We are looking for a breakdown.
We don't see much support below the current price level so this could be a hefty decline.
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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