It was a relatively boring day of trading today, but the rally really pushed our short-term indicators into overbought territory. We'll discuss this in detail in the short-term indicators section.
Looking at the 5-minute bar chart, we can see price drifted higher to finish the day, but the last price top took Stochastics down in a hurry and caused the 5-minute PMO to begin a negative crossover. Again, this looks like an excellent place for the market to pause or digest the current short-term rally.
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 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.
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THE MARKET (S&P 500)
IT Trend Model: BUY as of 3/30/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: Price did technically close above overhead resistance, but could be setting up a reverse island. We notice that the RSI moved into overbought territory today. The PMO is still rising, but is definitely on the overbought side as the range is typically -2 to +2.
The VIX remains above its moving average on the inverted scale. We expect to see a puncture of one of the Bollinger Bands soon given they have squeezed tightly together. Stochastics popped above 80. Internal strength is visible.
Here is the latest recording on 6/23 (no show on 7/3):
S&P 500 New 52-Week Highs/Lows: New Highs pared back considerably today and the 10-DMA of the High-Low Differential topped in overbought territory.
Climax* Analysis: Thanks to low-volume holiday trading there was only one climax reading today, so we will not call it a climax day.
*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 at their core exhaustion events; however, at price pivots they may be initiating a change of trend.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT.
While these indicators have seen higher readings, they are definitely overbought across the board. One benefit is that negative divergences that were setting up, were extinguished today. We have plenty of fuel to keep the bull market going given so many stocks are above their 20-day EMAs and 83% have rising momentum.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
We are listing IT indicators as overbought, but they definitely have some headroom unlike ST indicators. All of the indicators continue to rise which is positive for the intermediate term.
PARTICIPATION and BIAS Assessment: 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.
The bias is BULLISH in all three timeframes.
We have very high participation of stocks above their 20/50/200-day EMAs and all of these readings are higher than both the Silver Cross Index and Golden Cross Index. They should continue higher even if participation slims. The Golden Cross Index is now above the 50% bullish threshold.
CONCLUSION: It was an uneventful trading day, but it managed to push short-term indicators well into overbought territory. Price is likely setting up a reverse island formation right along overhead resistance. We would look for a digestion phase that would allow ST indicators to unwind. Given the strong bullish bias in all three timeframes, we aren't looking for a deep decline. Portfolio positions should be safe, but stops are never a bad idea. They can be set rather loosely right now.
Erin is 60% long, 0% short.
Erin will be appearing on Making Money with Charles Payne on Wednesday at 2p ET. Look for her during the hour. If there is another schedule change, we will notify you.
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BITCOIN
Bitcoin continues to consolidate just under overhead resistance. We did get a close above 31,000 and Stochastics are angling upward. A breakout is looking more likely, but we'd like to see the PMO accelerate a bit more.
INTEREST RATES
Interest rates are angling higher putting pressure on Bonds in all timeframes.
The Yield Curve Chart from StockCharts.com shows us the inversions taking place. The red line should move higher from left to right. Inversions are occurring where it moves downward.
10-YEAR T-BOND YIELD
$TNX is breaking out as expected from the large bullish falling wedge. Indicators are very bullish including a brand new PMO Crossover BUY Signal. The RSI is positive and Stochastics just moved above 80 while rising vertically. We expect higher rates.
BONDS (TLT)
IT Trend Model: SELL as of 5/16/2023
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: With yields climbing, TLT has been unable to get above overhead resistance. Given the bullish yields chart, we expect this to continue. Indicators are in agreement as the PMO flattens beneath the zero line and Stochastics fall quickly beneath net neutral (50).
DOLLAR (UUP)
IT Trend Model: BUY as of 5/18/2023
LT Trend Model: SELL as of 4/12/2023
UUP Daily Chart: The Dollar is in a solid short-term rising trend. The RSI and Stochastics suggest this will continue. The PMO is nearing a Crossover BUY Signal, but is very flat and indecisive. We expect this rising trend to continue.
GOLD
IT Trend Model: NEUTRAL as of 6/8/2023
LT Trend Model: BUY as of 1/5/2023
GLD Daily Chart: GLD did break out of a short-term bullish falling wedge, but the chart still is bearish given the overreaching bearish rounded top. Still the chart is showing some improvement given Stochastics are turning back up and the PMO has flattened.
GOLD Daily Chart: Discounts have pared back suggesting traders are more bullish on Gold. There is little to no correlation with the Dollar which might work to Gold's benefit given the Dollar is in a rising trend. We wouldn't look for anything major, the wedge only suggests a move to test June highs. That would change the face of the chart. We'll monitor it as always.
GOLD MINERS Golden and Silver Cross Indexes: Gold is looking interesting and so are Gold Miners. Participation was strong on the rally of the past two days. We have a bullish 68% above their 20-day EMAs. The PMO is nearing a Crossover BUY signal. This rally could get legs.
CRUDE OIL (USO)
IT Trend Model: SELL as of 5/3/2023
LT Trend Model: SELL as of 12/6/2022
USO Daily Chart: Crude Oil is in a trading range, however it is also in a declining trend channel now. The chart wants to be bullish, but until we see a breakout from this declining trend channel, we would be careful with Oil.
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl 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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