Today we had a Short-Term PMO crossover SELL signal on the Dow Industrials. I decided to pull up the Dow with the Swenlin Trading Oscillators (STOs) and a relative strength line comparing $INDU to the SPY. First note the accuracy of the STOs in marking market tops. The last tops on the STOs occurred on the price high. The STO-B is still declining suggesting very short-term support at the October high will be compromised. This leaves us with fairly strong support at the August highs. The Dow has been underperforming the SPY since October. This signal suggests that will continue, but it could also be a harbinger that the other indexes could be in trouble. The STOs tend to be good predictors of price bottoms as well. The STO-V is rising slightly but we need to see the STO-B do the same.
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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: XLY may look great on the daily RRG, but it does on the weekly RRG which you can reach at this link. XLY may be traveling in a bearish southwest direction, but it is only in Weakening and based on the positive weekly RRG, I'm expecting to see it hook back around to move toward Leading. On Friday's we will be adding the weekly RRG in addition to the daily for a different perspective. In the short term, new strength is arriving in XLC, XLI, XLU and XLE. Probably a good idea to avoid XLV which has a bearish southwest heading.
CLICK HEREfor 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 10/18/2021
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: The market failed to break to new all-time highs at overhead resistance. On the bright side it has moved the RSI out of overbought territory.
The top of the rising trend channel on the SPY was not hit before price began turning lower which isn't a good sign. Still, indicators aren't terrible as the PMO is moving mostly sideways and Stochastics are doing the same above 80.
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 SCI is still rising and is far from being overbought which is good for the intermediate term. However, the GCI is accelerating its decline suggesting the long-term foundation may be cracking ever so slightly.
S&P 500 New 52-Week Highs/Lows: New Highs contracted significantly.
Climax* Analysis: Today was not a climax day. However there are items of interest. First Total Volume increased on today's decline. Second, the VIX continues to oscillate below its EMA on the inverted scale suggesting internal weakness. Finally, we did see elevated Net A-D and Net A-D Volume to the downside. They weren't climactic, but they do suggest a negative bias in the very short term.
*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 either initiation or exhaustion.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
The STO-B moved lower today and while the STO-V did move higher, it remains negative. Notice the marked decrease in participation of stocks above their 20-EMA and the large decrease in stocks with rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
Both the ITBM and ITVM moved lower today. More stocks are losing their PMO BUY signals as well.
Bias Assessment: The short-term bias is bearish given the decrease in participation of stocks > 20/50-EMAs has brought readings below that of the SCI. We will likely see the SCI move lower. If it tops here, it will be in near-term overbought territory. The last time the SCI topped at this level it brought a rough September with price falling considerably. The IT bias is still bullish given the SCI reading is at 73%. The long-term bias is also bullish given the 82% reading on the GCI. However, as noted earlier, the decline on the GCI is picking up speed and that could shift the intermediate-term and long-term biases to bearish.
CONCLUSION: The consolidation and pause I was expecting this week is finally playing out. However, the indicators are getting more and more negative suggesting this "pause" could result in a significant pullback rather than a 'trickle up'. I mentioned to my DP Diamonds subscribers that my scan results are thinning. This means that fewer and fewer stocks are set up in bullish configurations. This is confirming what we are seeing as far as sliding participation numbers. It is time to consider playing "defense". I'll be locking in some profit in my portfolio and tightening stops on the remaining positions. Be careful out there, I don't like what I'm seeing.
I am 75% exposed to the market with 25% being in cash and readily available to trade.
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BITCOIN
Yesterday's comments still apply:
"On Monday, I noted the negative indicators on Bitcoin and while it was still holding a rising trend, it was poised to move lower which it has. I had figured we'd see a test of $60,000 but currently it is trading lower. Now we are at support at the $57,500 level (October low) and the 50-EMA. While this could be an excellent pivot point, the indicators remain very negative. I favor support holding, but price moving sideways in choppy Bitcoin fashion."
INTEREST RATES
Yields have broken their declining trends and are beginning to rise again leaving Bonds with a bearish bias.
10-YEAR T-BOND YIELD
The 10-year yield lost almost two basis points today on a strong pullback. However, the short-term rising trend is intact and indicators remain positive. This seems a natural response to the breakout from the short-term declining trend. Yields should continue rising.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP paused its breakout rally. The decline didn't damage the indicators and in fact, moved the RSI out of overbought territory. Stochastics are flat but are above 80 suggesting the Dollar should continue to rally.
I do note that the PMO has now reached overbought territory. For now it is rising.
GOLD
IT Trend Model: BUY as of 10/28/2021
LT Trend Model: BUY as of 11/16/2021
GLD Daily Chart: GLD continues to consolidate after the strong early November rally. The RSI is positive and Stochastics are oscillating above 80. Additionally, the PMO continues to rise and is not overbought.
(Full Disclosure: I own GLD as a "buy and hold" position.)
GOLD Daily Chart: Discounts are increasing which tells us gold investors are getting more bearish. Sentiment being contrarian, this is actually a positive for Gold. We could be looking at a bullish flag formation.
GOLD MINERS Golden and Silver Cross Indexes: Gold Miners may see some downward pressure if Gold decides to test support. This will likely lead to GDX testing a similar support level at the 200-EMA. Participation remains strong and the PMO is still rising. This consolidation has relieved overbought conditions on the RSI which is positive. I still like the Miners.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/3/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Price tested support at the 50-EMA and the early November low. Technically it is in a symmetrical triangle or pennant attached to a flag pole. If support is lost here, the bullish pattern will be scuttled. Given the negative and falling RSI, the negative and falling Stochastics accompanied by a declining PMO, I would expect to see a breakdown here not a rally.
We will watch this situation closely as price is testing the 50-EMA. This provided a nice jumping off point earlier this month.
BONDS (TLT)
IT Trend Model: BUY as of 11/8/2021
LT Trend Model: BUY as of 11/4/2021
TLT Daily Chart: With the 20-year yield declining, TLT rallied strongly and formed a bullish engulfing candlestick. So far the PMO is avoiding a crossover SELL signal and we do see the RSI rising again. However, Stochastics are still very negative.
The price pattern looks cup and handle-ish which is bullish and price did just close above the 200-EMA. However, yields don't appear ready to turnover. That will put downward pressure on TLT and likely curb any rally 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.
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Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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