The term "sell off" is being overused these days. Clearly people have forgotten what a real sell off looks like. If you want to refresh your memory, look at the sharp declines during the bear market. The market did see selling with a gap down to open trading, but by midday it began to show improvement after forming a double-bottom on the 5-minute candlestick chart.
I've marked the "buy points" with vertical blue lines and the "sell point" in red. A buy point is where the PMO is on a crossover BUY signal AND the RSI is positive (above net neutral 50). A sell point is defined at either a downturn in the PMO or a PMO crossover SELL signal. It is interesting to see how accurate these signals are. This is just an example of what I do in the free DecisionPoint Trading Room on Mondays. In the very short term there is a bullish bias going into tomorrow's open...
However, I do note that the SPY stalled in after hours trading and dropped below support so don't get too excited about today's finish.
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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:
CLICK HERE for 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 5/8/2020
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: Price did close near today's open. Having seen the 5-minute candlestick chart, we know that price hit support at the 20-EMA and bounced back up which is positive. Today's decline did pull the RSI back out of overbought territory. Total volume did increase today but is still below average based on the annual average.
Price pulled back after challenging the top of the bearish rising wedge. Price could hold at the 20-EMA, but I suspect it will stretch down to the 50-EMA before hitting new all-time highs.
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 Bullish Percent Index (BPI) shows the percentage of SPX stocks on Point & Figure BUY signals.
On Monday (8/9) Carl discussed the concept of a "stealth correction" during the DecisionPoint show. You can watch it HERE.
I decided to include the Bullish Percent Index (BPI) today due to its very negative crossover its signal line. This seals its negative divergence with price. The SCI pulled back slightly and the GCI is still in a declining trend.
Participation was damaged today. We are now seeing %Stocks > 20/50-EMAs retreating from near-term overbought readings. The negative divergences remain.
Climax Analysis: I expected to see a climax day, but we did not. While Net A-D readings were negative, they were not outside the normal range. New Highs pulled back. The VIX's tail came close to puncturing the lower Bollinger Band on the inverted scale. That is usually a bullish signal that generally leads to a day or two of higher prices. Maybe we will see that tomorrow.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
The STOs pulled back today out of overbought territory. We now have less than half of the SPX with rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM/ITVM both pulled back for the first time in weeks. That is a major concern. Tops on these indicators lead to market declines and could portend that the intermediate-term rising trend is in jeopardy.
Bias Assessment: We've added this new section called "bias assessment". It occurred to us that one of the ways we can measure market bias is to compare the SCI to the percent of stocks above their 20/50-EMAs. When the percentages are lower than the SCI, the market bias is bearish and if they are higher, it is bullish. Any "mechanical" signal requires additional analysis to confirm the numbers.
We were already seeing damage to the short-term bullish bias in the market. Now we have a clear bearish bias in the short term given %Stocks > 20-EMA is less than the SCI reading. The intermediate term is also showing a neutral to bearish bias based on the comparison of the %Stocks > 50-EMA to the 66.8% SCI reading.
CONCLUSION: Today's decline was not comfortable, but the market did retrace to lessen the damage done on the gap down this morning. However, I'm not optimistic given the immediate damage to what was a bullish bias. The STOs and ITBM/ITVM turned down which leads me to believe the market will continue lower. I had expected to expand my market exposure, but given the decline this morning I opted not to. I have a few positions that I'm waiting to sell. Like the market they recovered midday so no sell points arrived on the 5-minute candlestick chart. I have my finger on the sell button. My exposure is currently 45% but will likely diminish tomorrow if the decline continues.
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BITCOIN
After hitting the top of the bearish rising wedge, Bitcoin turned back down. The RSI is still positive, but the PMO is beginning to top. I'm looking for a test of the 20-EMA and support at the late July top. That will also test the bottom of this bearish wedge.
INTEREST RATES
Yields are pulling back after their recent breakout.
10-YEAR T-BOND YIELD
Yesterday's comments still apply:
"We had a very bullish double-bottom that executed with the rally above the confirmation line, but it failed spectacularly keeping the declining trend drawn from the May top intact. With a negative RSI and topping PMO, it appears $TNX will travel down to support at the July/August lows."
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: UUP rallied strongly but was held up at the short-term declining tops trendline. The indicators suggest a breakout ahead as the RSI is positive and not overbought and the PMO is nearing a crossover BUY signal.
There is a LT Trend Model "Golden Cross" BUY signal on tap for UUP that would change the bearish bias on this chart to a bullish bias.
GOLD
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: SELL as of 8/9/2021
GLD Daily Chart: Gold finished lower on the day. GLD was unable to overcome resistance and recapture the short-term rising trendline. The RSI was about to hit positive territory, but was turned away today.
(Full disclosure: I own GLD)
GOLD Daily Chart: $GOLD did poke its head above resistance, but ultimately closed beneath. Bearish sentiment based on the PHYS discounts is rising which will eventually be positive for Gold. I just don't think it is bearish enough.
GOLD MINERS Golden and Silver Cross Indexes: Not surprisingly Gold Miners fell today. The chart isn't bullish except for the bullish falling wedge. Participation is minimal. The conditions are not ripe for Gold Miners given the negative and falling RSI and the PMO top below its signal line.
CRUDE OIL (USO)
IT Trend Model: BUY as of 11/23/2020
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Yesterday's comments still apply:
"Crude Oil found support on horizontal support at the May top which preserved the short-term rising trend. This would be an excellent place for a bounce, but the PMO has now moved into negative territory and the RSI is falling not rising."
BONDS (TLT)
IT Trend Model: BUY as of 6/10/2021
LT Trend Model: BUY as of 8/10/2021
TLT Daily Chart: TLT was down very slightly today but it is holding well above support at the 20-EMA. The PMO hasn't really turned up yet, but the RSI is positive. The symmetrical triangle is a continuation pattern so the expectation is an upside breakout.
I noted yesterday that we have a cup shaped bottom with this symmetrical triangle acting as a handle. This would also suggest a breakout ahead.
Technical Analysis is a windsock, not a crystal ball.
--Erin Swenlin
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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.
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:
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DecisionPoint Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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