DecisionPoint

DP Weekly Wrap: Break or Fake?

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Last week SPY was below the cyclical bull market rising trend line. This week there was a post-election pop on Wednesday that caused SPY to recapture that rising trend line. Will that breakout hold, or is it a fakeout? There are two features on the daily chart that say to me that the latter is the case. First, the OBV line has formed a negative divergence, and, second, the VIX has topped at the top Bollinger Band, an event that in the last year has usually signaled a price top. At this point I'll be looking for a second trend line failure and lower prices.



The DecisionPoint Weekly Wrap presents an end-of-week assessment of the trend and condition of the stock market (S&P 500), the U.S. Dollar, Gold, Crude Oil, and Bonds.


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 and Long-Term Trend Model signal status for those sectors.


STOCKS

IT Trend Model: NEUTRAL as of 10/15/2018

LT Trend Model: BUY as of 4/1/2016

SPY Daily Chart: In addition to the issues I covered in my opening remarks, the daily PMO is decelerating and is probably going to top next week.

SPY Weekly Chart: In this time frame we can see the upside penetration of the rising trend line, but SPY closed below the line, making the upside breakout irrelevant.

Short-Term Market Indicators: This week the STO-B and STO-V topped on Thursday at very overbought levels. These events most likely signal a price decline in this time frame.

Intermediate-Term Market Indicators: As you can see, for most of the period shown on this chart the PMO, ITBM and ITVM ranges are mostly above the zero line. Last month they made the lowest lows since 2016. If we have entered a bear market environment, as I believe we have, the indicator ranges are going to shift to below the zero line, I which case they should be topping soon.

 

CONCLUSION: For my entire career as a technical analyst my primary objective has been to try to determine the trend of the stock market, because, if we get that right and take positions that are compatible with the trend, chances of winning are significantly improved. Of course, there is more to it than that, but that is still the most important step.

I think we have entered a bear market as of the October top. As happened earlier this year, I could be proven wrong about that, but, even if I am, I still don't see that much upside potential. As of Friday, only 56% of S&P 500 stocks have their 50EMA above their 200EMA. That means that almost half the stocks in the S&P 500 are on long-term SELL signals.

Next week is options expiration, so we should expect relatively low volatility toward the end of the week and the Monday after.


DOLLAR (UUP)

IT Trend Model: BUY as of 4/24/2018

LT Trend Model: BUY as of 5/25/2018

UUP Daily Chart: The dollar has been in a rising trend from the September low, and it currently fits perfectly inside a rising trend channel. It is currently rising off the bottom of the channel. If it turns down before reaching the top of the channel, I would expect the trend to break down.

UUP Weekly Chart: The top of a rising wedge implies that the current advance is probably finished. But price is still attacking the resistance, and the weekly PMO is still rising, so not so fast, Carl.


GOLD

IT Trend Model: BUY as of 10/19/2018

LT Trend Model: SELL as of 6/22/2018

GOLD Daily Chart: I have frequently referred to gold's progress as being "tortured," and nothing has changed in that respect. While gold is on an IT Trend Model BUY signal, we are once again watching horizontal support being tested. I assume that the advance from the August low is still intact (note rising trend line), but Friday's daily PMO SELL signal, as well as strongly negative sentiment, do not bode well for the survival of that trend.

GOLD Weekly Chart: In this time frame the weekly PMO reading is the same as last week's reading, which is almost the same as a top. Tortured!


CRUDE OIL (USO)

IT Trend Model: BUY as of 8/24/2018

LT Trend Model: BUY as of 11/2/2017

USO Daily Chart: USO has blown through some obvious support. The next support I have drawn at about 11.60, which aligns pretty well where I'm looking for crude ($WTIC) to find support (see weekly chart below).

USO Weekly Chart: Crude ($WTIC) is trending downward, but there is support just below at about 55-ish.


BONDS (TLT)

IT Trend Model: NEUTRAL as of 9/13/2018

LT Trend Model: SELL as of 9/18/2018

TLT Daily Chart: Two weeks ago TLT broke down from a rising wedge, as technically expected. It is now bouncing off this month's low, and the daily PMO rising once again. Nevertheless, Fed policy is pulling bonds down.

TLT Weekly Chart: In the longer-term the head and shoulders neckline has been decisively broken. While there was a bit of a bounce this week, I'm still looking for a decline to the minimum downside projection shown on the chart.



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Technical Analysis is a windsock, not a crystal ball.

Happy Charting!
- Carl


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.


Helpful DecisionPoint Links:

DecisionPoint Shared ChartList and DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking


 

Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. He was the founder of DecisionPoint, one of the web's premier market timing and technical signal services, which was acquired by StockCharts.com in 2013. Carl has contributed his market commentary and expert analysis to StockCharts since then. He is a Member of the CMT Association. Learn More
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