One thing we constantly say is that parabolic advances are hazardous to your health. What is a parabolic? It is when price advances at an ever-increasing rate of ascent because of a buying frenzy. On the chart below we can see the parabolic taking hold on Bitcoin in the last few months. Last week the parabolic broke down, an event that will probably lead to even lower prices. Since this is a six-month chart, it doesn't look all that dramatic, but a weekly or monthly chart is where we usually look for this formation.
On the weekly chart below the parabolic is unmistakable. We can see that the arc has been violated, as well as the support line drawn across the 2021 high. What is the potential downside? There is a line of support at about 48,000, and we can see potential support elsewhere, but guessing how far it will fall is as hard as guessing how high it will go. Cryptos have no intrinsic value, so they are only worth what people are willing to pay for them.
Conclusion: The lesson to be learned is that parabolic advances are dangerous and very hard to play. The one in 2020 to 2022 corrected about -56%, and the same could happen this time as well. That is not a prediction, just one of many possibilities.
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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MARKET/INDUSTRY GROUP/SECTOR INDEXES
CLICK HERE for Carl's annotated Market Index, Sector, and Industry Group charts.
THE MARKET (S&P 500)
IT Trend Model: BUY as of 11/14/2023
LT Trend Model: BUY as of 3/29/2023
SPY Daily Chart: The market will not be stopped. Today it formed a bullish engulfing candlestick that does suggest we'll see higher prices tomorrow. However, with the Fed announcement coming, we don't expect much price movement as investors mull things over in preparation although volatility could be an issue particularly if the Fed talks of less rate cuts.
The PMO is still on a Crossover SELL Signal, but so far the rising trend hasn't been violated. The rising wedge formation does suggest a breakdown will come. The VIX is back above its moving average and Stochastics are rising again so there is some internal strength to be had. We do note that mega-caps are in charge right now as we have a rising relative strength line against equal-weight RSP.
Here is the latest recording from 3/18:
S&P 500 New 52-Week Highs/Lows: We saw more New Highs on the day, but the negative divergence remains. The 10-DMA of the High-Low Differential continues to fall in bearish fashion.
Climax* Analysis: There were no climax readings today.
*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 NEUTRAL.
We were surprised to see both the Swenlin Trading Oscillators (STOs) turned up today. We did see a nice expansion in PMOs Rising, but we still have over half of the index with declining PMOs.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
The ITBM and ITVM also reversed higher today which does put a positive spin on the intermediate term. %PMO Xover BUY Signals did decline today and could decline tomorrow if we don't get more rising PMOs out of the index.
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.
The market bias is BULLISH in all three timeframes.
The Silver Cross Index is moving up, but it will be more difficult soon given we have lower percentages on %Stocks > 20/50EMAs. Those percentages are holding above our 50% bullish threshold so the ST Bias is BULLISH. The Silver Cross Index and Golden Cross Index are above their signal lines so the IT and LT Biases are BULLISH.
BIAS Assessment: The following table expresses the current BIAS of various price indexes based upon the relationship of the Silver Cross Index to its 10-day EMA (intermediate-term), and of the Golden Cross Index to its 20-day EMA (long-term). When the Index is above the EMA it is bullish, and it is bearish when the Index is below the EMA. The BIAS does not imply that any particular action should be taken. It is information to be used in the decision process.
The items with highlighted borders indicate that the BIAS changed today.
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CONCLUSION: Today's rally changed the face of some of our indicators. Both the STOs and ITBM/ITVM turned up on the day. We don't want to put too much emphasis on this as all continue to show negative divergences. The decline we keep looking for has yet to materialize, but internals are still somewhat weak when it comes to PMOs within the index. Mega-caps are showing leadership again and that seems to be keeping the market clicking. We do not think we are out of the woods. Tomorrow's Fed announcement could shake investors if rate cuts are considered delayed or fewer than the market would like. We still aren't in favor of expanding exposure. We don't see the market as favorable enough to forego stops.
Calendar: The Fed interest rate announcement is due tomorrow. No change is expected.
Erin is 55% long, 0% short.
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BITCOIN
In the near term, support is nearby at 60,000, but this slide is picking up momentum as displayed by the PMO. The RSI just dropped below net neutral (50) as did Stochastics. We see more downside ahead for Bitcoin right now. Next month's "halving" should help making Bitcoin more scarce which in turn could see higher prices. For now, it doesn't look good.
BITCOIN ETFs
INTEREST RATES
Yields pulled back today as many reached overhead resistance at prior highs. We suspect the rally will resume shortly.
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 hit overhead resistance and was turned away. We are still looking for a breakout here given the new PMO Crossover BUY Signal and Stochastics holding above 80.
BONDS (TLT)
IT Trend Model: BUY as of 3/6/2024
LT Trend Model: SELL as of 1/19/2022
TLT Daily Chart: TLT reversed on support as the 20-year yield dropped today. We doubt this level will hold given the PMO is on a SELL Signal and moving below the zero line. Stochastics also look sickly well below 20.
DOLLAR (UUP)
IT Trend Model: BUY as of 1/23/2024
LT Trend Model: BUY as of 5/25/2023
UUP Daily Chart: The Dollar continued to rally but did form a bearish filled black candlestick that could portend a decline tomorrow. That would make sense given UUP has hit overhead resistance. The PMO isn't doing much in spite of the rally so we see the rally as vulnerable as well.
GOLD
IT Trend Model: BUY as of 10/23/2023
LT Trend Model: BUY as of 10/20/2023
GLD Daily Chart: Gold continued to cool its heels. This is a pretty clear bull flag and that suggests an eventual upside breakout. We do not like the now declining PMO nor declining relative strength against the Dollar. This pullback could hang around longer.
GOLD MINERS Golden and Silver Cross Indexes: GDX dropped perilously today on a poor showing by Gold. Support is available at the 200-day EMA and participation is credible but until Gold gets going again we do believe this group will struggle further.
CRUDE OIL (USO)
IT Trend Model: BUY as of 2/12/2024
LT Trend Model: BUY as of 2/27/2024
USO Daily Chart: Yesterday's comments still apply:
"We got the handle on the cup and away price went, rallying strongly. The PMO is still on the rise above the zero line and Stochastics have now moved above 80. The RSI is getting overbought, but we think there is more rally to be had."
Good Luck & Good Trading!
Erin Swenlin and Carl Swenlin
Technical Analysis is a windsock, not a crystal ball. --Carl Swenlin
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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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