Since it is the last day of the month, we are presenting the "DP Monthly Wrap" where we will cover monthly charts. We have included the weekly charts for context, but remember those don't go "final" until the last trading day of the week.
We knew we had a climax in the making today. There were only six companies in the SPX that finished the day on a positive close.
Below we have the chart of the SPY with just the Volume Ratios for the NYSE and SPX and Total Volume for the SPX. We knew when the volume numbers started coming in today that we would see high Total Volume, but today's spike was higher than we typically see on options expiration days.
The NYSE and SPY Down/Up Volume ratios were off the charts and well above our threshold of 3.0. It is quite obvious that we had a climax day and since it is coming off Friday's downside initiation, today can be considered a downside "exhaustion" climax. We'll address this further in the section on Climax Analysis.
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: The RRG shows some of the damage that occurred to relative strength today. XLY landed in the Leading category today and XLK improved its position within that quadrant. How did this happen? XLY and XLK performed better than the SPY today which pushed them higher in the bullish northeast direction. This doesn't mean they are performing well, just better than the SPY. XLP is the only other sector moving in the bullish northeast direction. XLU and XLRE remain in Improving, but are deteriorating. XLV is making a positive move toward Improving. All other sectors are bearish.
RRG® charts show you the relative strength and momentum for a group of stocks. Stocks with strong relative strength and momentum appear in the green Leading quadrant. As relative momentum fades, they typically move into the yellow Weakening quadrant. If relative strength then fades, they move into the red Lagging quadrant. Finally, when momentum starts to pick up again, they shift into the blue Improving quadrant.
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 10/18/2021
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: The market fell nearly 2% today. This landed price on the intermediate-term rising bottoms trendline just below the 50-EMA. Indicators are negative with the RSI below net neutral and the PMO continuing lower on a crossover SELL signal.
Price is now headed down to the bottom of the long-term rising trend channel. Support is here on the 50-EMA and September high, so a small bounce could materialize on today's downside exhaustion climax. We'll address the VIX in the climax section.
SPY Weekly Chart: Remember weekly charts are not "final" but we need them for context when reviewing the monthly chart. The weekly PMO is configured very negatively with a top below the signal line. Price is now headed to the bottom of the long-term rising wedge. The pattern suggests price will break down there.
SPY Monthly Chart: The monthly chart is somewhat positive. The monthly PMO is still rising, but it is overbought, as is the monthly RSI. We have a parabolic advance working. Parabolic price patterns generally breakdown quickly and painfully. We need to consider the implications. Note that the monthly OHLC bar has a long "wick". That is a bearish "shooting star" that could also indicate a longer-term breakdown is ahead.
PARTICIPATION: The following chart objectively shows the depth and trend of participation 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.
Since hitting all-time highs, the SCI has been declining. It is not really oversold yet. While we still have over 61% of the SPX with 20-EMAs > 50-EMAs, it is declining rapidly now. The GCI has been in decline since August. It is a slow mover for good reason, many of the stocks have configurations similar to the SPY, meaning their 50-EMAs are much higher than their 200-EMAs. It takes longer to sustain damage, but damage is occurring.
New 52-Week Highs/Lows: For the first time in well over a year, we have a significant amount of New Lows. They were not accompanied by a larger amount of New Highs, which is also new for the year. The 10-DMA of the High-Low Differential is reaching oversold territory and is still in decline.
Climax Analysis: As noted in the opening, we definitely got some serious climaxes today. To reiterate, since Friday's climax was a downside initiation climax, we have to assume that today was a downside exhaustion climax. This doesn't mean that the decline is through, but may see some churn, maybe even another bounce before the decline continues. The VIX suggests this is an exhaustion climax as well given it closed beneath the lower Bollinger Band on the inverted scale. Just remember, that didn't impress the market yesterday after Friday's puncture.
*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 indicate either initiation or exhaustion.
Short-Term Market Indicators: The short-term market trend is DOWN and the condition is OVERSOLD.
STOs pushed downward into oversold territory. We now have only 4% of the SPX with rising momentum. Clearly this is an oversold reading.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
As far as the ITBM/ITVM, readings are neutral and falling. Only 18% of the SPX have PMO crossovers. This is also a very oversold reading. However, it isn't the lowest we've seen. Given only 4% have rising PMOs, this number is likely to shrink even lower.
Bias Assessment: We have a bearish bias in all three timeframes still. Participation of stocks > 20/50-EMAs is far lower than the SCI percentage. We also see some damage in the long term with a markedly lower amount of stocks above their 200-EMA. That number is very oversold near-term. 2020's oversold level was at 50% of stocks > 200-EMA. Of course the bear market saw percentages well below that. The point is that we are now seeing significant long-term damage to participation.
CONCLUSION: Today we had a downside exhaustion climax. This doesn't mean that this decline is over. Climaxes are very short-term events; they don't always mark the end of a short- or intermediate-term trend. The STOs are moving lower and they aren't THAT oversold. ITBM/ITVM are only neutral. The PMO is not at all oversold and it is still in decline. More than likely we will see a rebound, but not a lengthy one. We should prepare for market churn and likely lower prices. If the market can eke out a bounce, consider using it as an opportunity to sell into strength as that will be likely be hard to come by in the coming week or weeks.
Erin is 20% exposed to the market with 80% in cash and available to trade.
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BITCOIN
Bitcoin has rebounded out of its low last week. Some are considering cryptocurrencies as a place to hide out. However, right now, price is struggling to overcome resistance. The RSI is still negative, but the PMO appears to be coming around and Stochastics are rising again. It is set up to breakout, but for now overhead resistance is holding price back.
INTEREST RATES
Longer-term yields have broken support at their November lows.
10-YEAR T-BOND YIELD
$TNX broke below the rising trend, but support is still available at the August/September highs and the 200-EMA, but given the negative indicators, we should be prepared for them to move even lower as investors flee to Bonds.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: The Dollar pulled back to the 20-EMA. The RSI is still positive, but the PMO has topped and Stochastics have dropped below 80.
Price is holding above the bearish rising wedge, but we would look for a pullback to the October top.
UUP Weekly Chart: The weekly chart still looks positive enough with the positive weekly RSI and PMO.
UUP Monthly Chart: The monthly chart could explain why we are seeing the pullback now. Price hit overhead resistance at the 2008 and 2016 tops. We should expect a breakout given the positive and rising RSI as well as the PMO zeroing in on a crossover BUY signal in oversold territory just above the zero line.
GOLD
IT Trend Model: BUY as of 10/28/2021
LT Trend Model: BUY as of 11/16/2021
GOLD Daily Chart: Interestingly, Gold is not the flight to safety it once was. Today Gold prices fell. GLD has formed a bearish engulfing candlestick suggesting a test of the $164 level. The negative RSI, falling PMO and negative/falling Stochastics confirm this.
The rising bottoms trendline drawn from the September low was breached today. Stochastics on $GOLD look a bit better than on GLD as it appears to be bottoming. Discounts are still very elevated telling us investors are bearish on Gold.
GOLD Weekly Chart: Price failed to hold the breakout from the declining trend. There is a declining tops trendline and flat lows. That is a bearish descending triangle suggesting prices could move lower. The weekly RSI and PMO are in agreement.
GOLD Monthly Chart: The monthly PMO is still declining. Price appears to have formed a bullish cup with handle. However, that pattern tells us the right side of the cup should be lower than the left so while that pattern has bullish implications, we aren't counting on it.
GOLD MINERS Golden and Silver Cross Indexes: Falling Gold prices have not helped Gold Miners. The short-term rising trend was compromised Friday. GDX attempted to recapture that short-term rising trend, but closed beneath it once again. The RSI and PMO are very negative as well as the SCI which is falling almost vertically. On the bright side, Gold Miners still have a pulse given participation percentages appear to have slowed their descent.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/30/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: After rebounding yesterday, price tumbled on Crude Oil. Support has now been lost at the 200-EMA. The PMO has hit negative territory. The RSI is now officially oversold, but it is still declining.
Stochastics are oversold but continue lower. We expect support to be tested at the $43 level.
USO/$WTIC Weekly Chart: The long-term rising bottoms trendline drawn from the late 2020 low has been breached. The weekly PMO and RSI also suggest price will move lower.
WTIC Monthly Chart: Price had just popped above overhead resistance. This month it took back the gains and then some. The monthly RSI is in positive territory, but is falling. The monthly PMO flattened in overbought territory.
BONDS (TLT)
IT Trend Model: BUYas of 11/8/2021
LT Trend Model: BUYas of 11/5/2021
TLT Daily Chart: TLT moved above overhead resistance intraday, but closed on it. The chart is still very bullish given the positive RSI and rising PMO. Stochastics are also favorable. The 20-year yield dropped below the November low, but we expect it to move lower toward September lows.
There is an intermediate-term ascending triangle (rising bottoms, flat tops) in play. We didn't think it would happen, but it appears a breakout is nearing.
TLT Weekly Chart: This is a strong area of resistance viewed on the weekly chart. The weekly RSI and rising weekly PMO do suggest we will see a breakout.
TLT Monthly Chart: Even the monthly chart is coming around. The monthly PMO is turning up and the monthly RSI is rising in positive territory. TLT is bullish in all three timeframes right now.
Technical Analysis is a windsock, not a crystal ball.
-- Carl & 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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