Today, the Materials sector (XLB) broke out to new all-time highs. Momentum had already been positive and moving higher, we were just waiting for a breakout. The chart looks very bullish, but there are two indicators that are troublesome.
The RSI is now in overbought territory and looking at the past year, an overbought RSI isn't usually a friend to XLB. The other indicator of issue is the OBV. Note that the OBV tops from August are much higher than the current OBV reading. That is a negative divergence.
Bullish indicators are all around. The PMO is rising nicely and is not overbought. The Silver Cross Index (SCI) is rising and at a healthy 78%. The Golden Cross Index (GCI) is even healthier at 93%. Over 92% of stocks within XLB have their price above the 20-EMA and 71% have price above their 50-EMA. This tells me the SCI will continue to rise and that we have bullish configurations on about 3/4 of XLB. Reinforcing the bullish outlook for XLB would be rising relative strength against the SPX and Stochastics oscillating above 80 which implies internal strength.
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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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: XLB is looping back around in Weakening and appears ready to recapture a home back in Leading. Clear relative winners are XLK and XLY. XLC and XLP are working back toward Improving. Losing sectors are clear as they zero in on the center of the Lagging quadrant.
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: We have a short-term bearish rising wedge on the 5-month candlestick chart. We now have our second bearish black candlestick. Why are these bearish? It tells us that despite closing higher than the previous day, price didn't close above today's open. That often suggests that bears have wrested control and could continue to press their advantage. Investors are getting worried a top is near given the higher reading on the VIX.
Stochastics, the PMO and OBV are all very bullish. The RSI is overbought and that typically leads into a decline or at best, a pause in the action followed by sideways price movement. We have now drawn a rising trend channel in the intermediate term. With price tapping the top of the channel, we need to be prepared for it to move lower to tap the bottom. Although indicators are too bullish to expect a drop below the 50-EMA right now.
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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 rising and the GCI is moving mostly sideways. In both cases the readings are bullish.
S&P 500 New 52-Week Highs/Lows: New Highs pared back today and now we see the 10-MA of the High-Low Differential has topped. That is generally a warning signal.
Climax* Analysis: Today was not a climax day. As noted earlier VIX readings were higher so on our inverted scale, it is getting very close to moving below the lower Bollinger Band. That is actually a bullish signal. Note that typically when the lower Band is punctured, it leads to short-term rallies or at least a day or two of higher prices. It's not there yet. There is also the issue that the Bollinger Bands are squeezing. That makes it easier for the VIX to puncture the Bands. We have to not read too much into the punctures when the Bands are so close together.
*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 OVERBOUGHT.
STOs fell today and that usually leads to lower prices, but in this rally that hasn't always been the case. Still, we don't want to see them topping as it has now cemented negative divergences between indicator tops and price tops.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM/ITVM are still rising but are definitely overbought right now. 70% of stocks in the SPX are on PMO Crossover BUY signals which is positive. They had been trending lower, but we could be seeing a reversal.
Bias Assessment: The short-term bias is bullish given we have more stocks with price > 20/50-EMAs than those with Silver Crosses. Higher percentages mean the SCI can continue to move higher which is then bullish in the intermediate term. We have slightly less stocks with price > 200-EMA and that is preventing the GCI from moving higher. Still, the long-term bias is still bullish given the healthy 83% GCI reading.
CONCLUSION: Negative divergences are being cemented in as indicators have now topped while price is moving higher. Two black candlesticks and an expanding VIX suggest investors are getting concerned about overbought conditions and the lack of a decline. There is a bullish bias in all three timeframes based on participation and the SCI/GCI. Still, we know the market can't continue to move higher indefinitely. It is high time for a market pause or small decline and these negative divergences suggest it is coming soon. Keep the stops in play and consider carefully any expansion in exposure. A decline could become contagious.
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BITCOIN
After breaking out of the bullish flag, price pulled back to support at the 20-EMA. Bitcoin is now rising in earnest. The minimum upside target of the flag would imply price could reach $83,000. That seems a stretch to me, but certainly new all-time highs are likely to continue given the now rising PMO, strong Stochastics and positive RSI.
INTEREST RATES
Yields are in a declining trend but today saw a bounce.
10-YEAR T-BOND YIELD
$TNX reached its second fail-safe line of support after it failed to hold the 50-EMA. Now it is bouncing. The indicators haven't improved yet, so it may have to test the final level of short-term support at the 200-EMA and August highs.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: UUP is breaking down from a short-term bearish rising wedge. The 20-EMA is still holding as support, but Stochastics are flattening and the PMO is avoiding a crossover BUY signal. I would look for a test at the bottom of this wedge.
Price has now retreated before hitting the top of this longer-term bearish rising wedge. That is bearish.
GOLD
IT Trend Model: NEUTRAL as of 6/24/2021
LT Trend Model: BUY as of 10/28/2021
GLD Daily Chart: Gold is rallying. The PMO has a bullish bottom above the signal line and the RSI is positive. Stochastics have now reached above 80 and continue to rise strongly. GLD does have a strong area of resistance ahead, but positive indicators suggest a breakout ahead. Carl pointed out today that that resistance line is also a confirmation line of a double-bottom formation which also suggests a breakout is imminent.
(Full Disclosure: I own GLD as a "buy and hold" position.)
GOLD Daily Chart: As of publishing, we don't have today's Discount/Premium reading for PHYS, but you can see on Friday discounts expanded quite a bit. That implies bearish sentiment. Sentiment being contrarian, this is good for Gold.
GOLD MINERS Golden and Silver Cross Indexes: I discussed Gold Miners at length during today's DecisionPoint Show. Given XLB is breaking out and Gold is looking bullish, conditions are now ripe for Gold Miners and Miners in general to breakout as well. A breakout would execute a bullish reverse head and shoulders pattern. The upside target of the pattern would imply a move that could challenge the May tops. The SCI is topping right now, but now that participation is expanding among stocks with their price > 20/50-EMAs, we should see it reverse soon.
CRUDE OIL (USO)
IT Trend Model: BUY as of 9/3/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: Crude Oil is rebounding off the 50-EMA and given the bullish indicators, we expect the rally to continue.
The PMO is turning up and the RSI is back in positive territory. Stochastics are rising strongly. You could also make a case for a bullish flag formation. We need to see a breakout from the current declining trend.
BONDS (TLT)
IT Trend Model: BUY as of 11/8/2021
LT Trend Model: BUY as of 11/4/2021
TLT Daily Chart: TLT saw a "Golden Cross" of the 50/200-EMAs last week and today we saw an IT Trend Model "Silver Cross" BUY signal. Indicators are still very positive.
We would look for a challenge of the July and September highs, but we don't see yields falling much longer. Upside potential at this time seems limited based on that upcoming resistance level.
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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DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
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