Lots to talk about today! XLF whipsawed back into a "Silver Cross" BUY signal, Gold (GLD) saw a "Dark Cross" of the 20/50-EMAs for an IT Trend Model SELL signal and finally, we had an upside exhaustion climax.
Yesterday I discussed the IT Trend Model "Dark Cross" Neutral signal that was triggered when the 20-EMA crossed below the 50-EMA. Today on a rally above both of those EMAs, the signal was reversed back into an IT Trend Model "Silver Cross" BUY signal. You'll note in yesterday's commentary that I wasn't bearish on this sector and finished with:
I believe XLF will benefit from any short-term rally in the market, but it still has to face overhead resistance at the 20/50-EMA. - DP Alert (12/6)
Well that resistance didn't prove to be very strong. Participation improved greatly today, but I would consider the bias to be "neutral" given the %Stocks > 50-EMAs is the same percentage as the Silver Cross Index (SCI).
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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: Yesterday's comments still apply:
"Defensive sectors have taken over Leading. XLY and XLK have begun to weaken. XLE, XLF and XLV are in a bullish northeast heading. XLI and XLB are Lagging but traveling toward Improving. XLC is still moving west but at least it is trying to head toward Improving."
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: Today we saw a strong upward thrust in the SPY and most broad markets. Carl and I discussed yesterday's upside climax and misidentifying it as an exhaustion. Clearly it was an initiation. Well, we have another climax day, but I'll talk about that in a bit.
The RSI is now back in positive territory and the PMO has finally turned back up. The VIX contracted and that has pushed it just below the EMA on the inverted scale. It's important to note that Total Volume has been contracting as price has been recovering.
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.
Yesterday's comments still apply:
"You can't see it, but the SCI ticked up for the first time since this decline began. A little over half of the index have 20-EMAs greater than their 50-EMAs. This means that about 45% are still in correction mode. Long-term the GCI continues lower, but the reading of 77% tells us that only 23% have a bearish long-term bias."
New 52-Week Highs/Lows: New Highs expanded significantly on today's upside exhaustion climax. The 10-DMA of the High-Low Differential has flattened out and is beginning to turn back up. However we saw the same characteristics in mid-September and while we did see a rally, it failed. This is encouraging to see it beginning to bottom, but it's hard to say if this is marking an intermediate-term reversal point.
Climax Analysis: Volume Ratios and breadth made spotting today's upside climax easy. Since this is a follow-through on yesterday's rally, we view it as an upside exhaustion climax. Even my most bullish colleagues aren't trusting this breakout today. Volume patterns are the big problem, as noted earlier, Total Volume tapering off. The VIX will be telling tomorrow, I expect it to oscillate below its EMA on the inverted scale as I don't believe the volatility is done.
*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 UP and the condition is NEUTRAL.
The STOs hit positive territory today, but are in neutral territory. We saw a huge increase in participation, but that has put readings into overbought territory already. The acceleration of these indicators seems to go hand in hand with today's upside exhaustion climax. The last time we saw an accelerated move like this, it was before the February top... just sayin'.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is NEUTRAL.
The ITBM/ITVM are contracting and we saw considerable improvement to %PMO Buy Signals.
Bias Assessment: Participation shot skyward and has now pushed past the SCI reading of 55%. While this technically gives us a short-term bullish bias, those readings are now in overbought territory coming on the heels of an upside exhaustion climax. The intermediate-term bias is somewhat bullish given the SCI is rising. The long-term bias is neutral. On the minus side, we have slightly fewer stocks > 200-EMA compared to the GCI. On the plus side, this is coupled with %Stocks > 200-EMA rising.
CONCLUSION: Yesterday's upside climax was an initiation not an exhaustion. Hindsight is 20/20 after all. I liken climax identification with price gap identification. We don't know what kind of gap it is until we get follow-through. Today's climax has the earmarks of an exhaustion climax, particularly given the short-term indicators are already getting overbought. Total Volume, while well above the annual average, has been tapering off which leaves us questioning investor conviction. We expect more choppy trading ahead.
Erin is 10% exposed to the market with 90% in cash and available to trade.
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BITCOIN
Yesterday's comments still apply:
"Bitcoin had a terrible Saturday, plunging below the 200-EMA and the rising bottoms trendline. Support appears to have been found at 42,500 and price is back above the 200-EMA. The PMO is decelerating and the RSI is beginning to rise out of oversold territory. Stochastics are also beginning to rise again. This appears to be a good reversal point, but I wouldn't get too bullish until price gets above resistance at 52,500 or the September high."
INTEREST RATES
Longer-term yields are now beginning to reverse and join short-term yields which have been trending higher since the end of November.
10-YEAR T-BOND YIELD
Support held, but that didn't stop the "Dark Cross" Neutral signal. The RSI and Stochastics are rising and the PMO is attempting a reversal on the zero line. This looks like a reversal that could break from the bearish rounded top.
DOLLAR (UUP)
IT Trend Model: BUY as of 6/22/2021
LT Trend Model: BUY as of 8/19/2021
UUP Daily Chart: Two black candlesticks in a row tell me to expect lower prices on UUP tomorrow. The PMO avoided a crossover SELL signal, but I doubt it will be so lucky tomorrow. Stochastics are negative. Given the slim trading range, the RSI has been steady, but holding in positive territory. I'm expecting a pullback to the 20-EMA.
We expect the Dollar to move sideways or slightly higher given the mixed indicators.
GOLD
IT Trend Model: SELL as of 12/7/2021
LT Trend Model: SELL as of 12/3/2021
GOLD Daily Chart: Despite today's "Dark Cross" SELL signal, Gold appears to be ready to reverse. Indicators are improving somewhat. The RSI is negative but is rising. The PMO is below the zero line but is decelerating. Stochastics look pretty good as they rise out of oversold territory.
This seems a credible reversal, but as Carl always says, any rally will likely be "tortured" with bumps and bruises along the way as it makes its way higher.
GOLD MINERS Golden and Silver Cross Indexes: I like the continuation of yesterday's reversal. Indicators aren't on board yet and EMAs are configured negatively. Participation is anemic and the SCI continues to drop. Tread carefully if you're exposed to this industry group.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 11/30/2021
LT Trend Model: BUY as of 3/9/2021
USO Daily Chart: My only issue with USO would be the "shooting star" candlestick that formed along resistance. However, I took a peek at $WTIC and it didn't have this kind of candlestick. The RSI is rising along with Stochastics. The PMO has finally turned up. I believe this is a credible reversal and expect a breakout here.
BONDS (TLT)
IT Trend Model: BUY as of 11/8/2021
LT Trend Model: BUY as of 11/5/2021
TLT Daily Chart: TLT lost support at the July/September/November tops. Given yields are beginning to rise again, I think we've seen all the upside we're going to get on Bonds. However, I will caveat this. If we see a big decline in the broad markets off today's exhaustion climax, Bonds could cling to this support/resistance line at $151.50.
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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