In our Conclusions section of the Weekly Wrap last week, I expressed my heightened level of caution due to the negative condition of our indicators. On Monday a nice rally to new, all-time highs gave me cause to doubt my assessment, but the rally stalled on Tuesday, and the bottom fell out on Wednesday. But never mind, the market bounced off Thursday's low, and about half of the loss was recovered by Friday's close. Will Thursday's low be retested, or has another up leg begun? Let's look at the technicals and see if they can give us a clue as to what may happen next.
You'll likely notice the significant changes to the DP Scoreboards (which you can now find on your member homepage in the drop down in the "Market Movers" box!). A clear shift in momentum is taking place. Yesterday the short-term Price Momentum Oscillators (PMOs) were all rising on the Dow, SPX and OEX. Today they were yanked down so far that it triggered PMO crossover SELL signals. The weekly charts last Friday reflected the two new IT PMO SELL signals on the SPX and OEX.
No changes to report on the DecisionPoint Scoreboards. They remain green in all timeframes (with the exception of the Dow IT PMO SELL signal). I suspect we will see some IT PMO SELL signals this Friday, barring a major rally. The OEX is currently configured for an IT PMO SELL signal on the weekly chart.
I thought that last week's breakout was the initiation of a new rally that would continue this week. But no. This week price moved back below the breakout level, but strangely this failure did not develop into a more serious breakdown either. Price just continued to churn sideways, which resulted in the PMO (Price Momentum Oscillator) turning down -- a very short-term SELL signal.
No new changes to the DP Scoreboards to report...except that you can now find the DP Scoreboards on your member homepage! I'll be writing about how to quickly access it in tomorrow's blog. While everything remains green on most of the boards, I did note when reviewing the charts in the DP Shared ChartList that ST PMOs are topping or have topped. The weekly (IT) PMOs may not be able to hold onto the current BUY signals. I'll update you on any new changes that arrive tomorrow on any of the weekly charts.
I realized that I haven't really reviewed the small and mid-cap ETFs in some time. You'll find these charts in the DecisionPoint LIVE shared ChartList if you want to keep an eye on them with my annotations. The chart patterns for these ETFs aren't mimicking the large-caps, but they have managed to hold on to key support. It is always important to see small-caps do well in concert with large-caps. For obvious reasons, you need everyone participating if you're going to have a strong bull market rally. There are still some problems with these charts so I don't think they support a big rally right now. Good news is they don't support a correction either.
The DP Scoreboards continue to show bullishness in all three time frames as far as price trends and momentum. The only outcast is the Dow which is still waiting on the weekly PMO to have a positive crossover. Unfortunately, the PMO on the weekly chart is still in decline. It is actually increasing the margin between itself and its signal line. The Dow weekly chart is below the Scoreboards so you can see how close it is to logging that BUY signal.
Last week I wrote regarding SPY: "Consolidation may continue for a bit, and it is possible that price will move lower toward the point of the breakout and fill Tuesday's gap; however, the charts in all three time frames are bullish, and I favor a breakout to new all-time highs next week." Had I remembered that there was to be a Fed announcement on Wednesday, I would have anticipated that the market would probably churn until after that. Nevertheless, the market did break out ever so slightly before the close on Friday, but obviously, more work needs to be done before the move can be considered decisive.
The market hasn't really done much this week which is keeping the DP Scoreboards in a holding pattern. I've been getting regular 'technical alerts' that the OEX IT Price Momentum Oscillator (PMO) signal has changed, meaning that whipsaw is happening daily. We won't know the actual signal until the weekly chart goes final tomorrow afternoon. I'll keep you apprised.
During the MarketWatchers LIVE program (airs 12:00p - 1:30p EST M/W/F), Tom Bowley and I have started a segment called "Anatomy of a Trade" where we go through our process for identifying investment prospects. I use Price Momentum Oscillator (PMO) scans to start every mining exercise. One of the scans I have been using regularly identifies stocks that have PMOs rising for three days and have a bullish IT and LT Trend Model set-up (meaning the 20-EMA > 50-EMA > 200-EMA). I did adjust this scan slightly (for the better I think) from the one I ran today by screening for only US stocks that are trading above $10. Today's favorite (you can see it in the MarketWatchers LIVE blog for today) was UMC, but it trades in the $1 - $2 range and really isn't for beginning traders or those with a low risk tolerance due to its volatility.