NASDAQ LEADS MARKET HIGHER... Stocks are reacting positively to this morning's job report which came in weaker than expected but showed job growth during May. Bond yields weakened on the report which may be helping to boost stocks, and technology stocks in particular. Chart 1 shows the Invesco QQQ Trust climbing sharply today and nearing a test of some overhead resistance formed over the last month. The QQQ is the strongest of the major market indexes. A strong day in technology is the main reason why.

TECHS AND CHIPS HAVE A STRONG DAY...Chart 2 shows the Technology Sector SPDR (XLK) rising today to the highest level in a month. The XLK is the day's strongest sector. It's being led higher by semiconductors. Chart 3 shows the VanEck Vectors Semiconductor ETF (SMH) moving further above its 50-day moving average.

Chart 1

Chart 2

Chart 3

SMALL CAPS MAY BE TRIANGULATING...Small caps are also looking stronger and may be nearing an upside breakout. Chart 4 shows the Russell 2000 iShares (IWM) testing a falling trendline drawn over its March/April highs. The two converging trendlines overlaid over the price action resemble a potential "symmetrical triangle" which is normally a bullish continuation pattern. A decisive close over the upper trendline would be a positive signal.

Chart 4

BITCOIN MEETS 40K RESISTANCE...Chart 5 shows Bitcoin consolidating between chart support near 30,000 formed during January and resistance near 40,000. It also remains below its 200-day moving average. It would have to clear that red resistance line to strengthen its short-term trend (see red arrow).

Chart 5

In John Murphy's classic text Technical Analysis of the Financial Markets, he explains that one of the three basic assumptions of technical analysis is that prices move in trends. For anyone that has looked at charts for any amount of time, this seems like an obvious truism. The real question is how measure these trends, how we follow them and how we anticipate when the trends are nearing exhaustion.

When I teach technical analysis, I start with Charles Dow's basic definition of trend. Are the highs getting higher? Are the lows getting lower? Just answering those two basic questions on any particular chart will often keep you on the right side of things.

We can also take this trend analysis to the next level, perhaps using moving averages. I often use the 50-day moving average as a simple trend gauge. Is the price above or below this smoothing mechanism? Are the moving averages sloping up or down? Where is price relative to the 50-day moving average?

Let's apply this analysis to the FAANG stocks, starting with the NYSE Fang Plug Index.

This index is comprised of not just the FAANG stocks (FB, AMZN, AAPL, NFLX and GOOG) but also other "FAANG-like" stocks such as TWTR and TSLA. One look at the chart shows you that this is not in an uptrend, nor in a downtrend, but in the third direction: sideways.

You see, we often group stocks together and create acronyms when they are trading in a similar fashion. So the FANG names were grouped together when mega cap technology, communications and consumer names were all moving higher. Now, we have names like Facebook breaking out to new all-time highs while Tesla is on breakdown watch. Microsoft is back above its 50-day moving average while Amazon has been rangebound for about eight months.

Long story short, the FAANG stocks are no longer trading in unison, but rather are diverging into the "haves" and the "have nots." Therefore, I propose a new group of stocks that 1) are in uptrends according to Charles Dow's classic definition and 2) are trading above their 50-day moving averages.

Presenting the FAME stocks: Facebook (FB), Alphabet (GOOG), Microsoft (MSFT) and eBay (EBAY).

These four stocks represent the same sectors of the FAANG names, but we have basically swapped underperforming members of that group for stronger performers such as MSFT and EBAY.

Let's review the four charts.

Facebook has arguably the best chart of the bunch, having broken out of a nine-month base in early April followed by a successful retest of support. The stock made new all-time highs again this week, with clear support at the $300 level.

Alphabet has been in a consistent uptrend and provides perhaps the best illustration of the value of the 50-day moving average. Look how often the price has pulled back during the uptrend, right to the 50-day for a "buy on the dips" opportunity.

Microsoft is perhaps the most challenged of the four, as it has pulled back from all-time highs reached in mid-April. However, I think this is another example of the 50-day moving average as a gauge of risk, especially since the breakout in January.

Finally, we have eBay, which is not traditionally grouped with these other names but shows a strong trend profile. EBAY hit the 60 level in July 2020 and spent about six months backing-and-filling to the 200-day moving average before rotating back to the upside.

Friday's rally pushed the stock to another new all-time high and the RSI is not yet overbought. The relative strength on EBAY is less attractive than other names, but the 50- and 200-day moving average certainly could provide support during any pullbacks.

While in years past we followed the FAANG stocks to track leadership in the growth sectors, I would propose the FAME stocks as a better representation of current leadership with upside potential. Most importantly, the 50-day moving average could prove important on all four of these charts, as this popular smoothing mechanism often indicates a level at which institutions are willing to buy short-term weakness and propel the stock to higher highs.

To digest this article in video format, check out my YouTube channel:

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free course on behavioral investing!

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David Keller, CMT

Chief Market Strategist

StockCharts.com

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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.

The author does not have a position in mentioned securities at the time of publication. 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.

The S&P 500 reached a high on Friday of 4233.45, narrowly eclipsing the all-time high close of 4232.60 from May 7th. Unfortunately for the bulls, selling in the final few minutes ruined the breakout attempt. This false breakout, ever so slight, could be quite ominous for next week and there's one MAJOR reason why.

Inflation data.

That May 7th all-time high came just days before the shocking April CPI data was released on May 12th. Now here we are back at the high again. As the late Yogi Berra might say, "it's deja vu all over again!" I don't believe inflation to be a problem, but just the possibility of it could trigger scary headlines and encourage selling in the week ahead. First, let's look at the "almost" breakout on Friday and then how the past several weeks evolved in terms of S&P 500 performance and key rotation:

First, if we break out next week, that would be a bullish development that would trump everything else I'm discussing. I nearly always respect an all-time high. The only time I'd be leery would be if the strength that carried us to that all-time high came from defensive areas of the market.

On this next chart, look at how the market prepared before those last CPI/PPI reports were released:

The market braced for bad news, as the S&P 500 lost 3% on the Monday and Tuesday prior to April CPI and PPI being released. Will we see that again this month? There's no way to know for sure, but I fully expect we'll get some shocking headline CPI numbers on Thursday morning. From the above chart, you can see the rotation that's been taking place. The S&P 500 has returned to its prior high, but note that none of these ratios are anywhere close to their recent highs. When these ratios all begin trending higher, we'll know that inflation news is in the rearview mirror. For now, we need to be cautious.

Let me be clear that I do NOT believe inflation will be a problem. The year-over-year numbers look bad for two reasons. First, we're replacing negative monthly numbers from March, April and May of 2020 with much higher numbers in March, April, and May (this Thursday) of 2021. That's sending the annual inflation rate soaring. Here's the Core CPI chart for a visual:

The red circles highlight the drop in Core CPI in the Spring of 2020, the soaring Core CPI the past few months and the 12-month rate of change (ROC). On Thursday, it's quite likely we'll see headlines that say inflation is at its highest level in 25 years. Get ready for it.

The second reason that the year-over-year number keeps rising is that we've had a major supply chain disruption. Demand has been accelerating as GDP has hit its highest level in decades at a time when we have supply shortages in so many areas. This temporary imbalance in demand vs. supply is overstating the true inflation picture. So while I don't believe inflation will be problematic AT ALL, scare tactics are often used in the financial media to allow professionals an opportunity to buy cheaper. We saw it last month and we may see it again this week.

To provide our EarningsBeats.com community with the best current information on inflation and its likely impact next week, I'll be hosting a special event, "Preparing For Shocking Inflationary Data", on Monday, June 7th at 4:30pm ET. It's open to everyone and completely free. I'll be discussing ways to protect your portfolio in the event that we do see that negative reaction throughout the week ahead (and possibly longer). We'll be providing a room link in our EB Digest newsletter on Monday morning so that you can join us. Our EB Digest is our FREE newsletter (no credit card required, so simply subscribe by providing your name and email address HERE -- scroll down on our home page) and we'll send you room instructions to attend Monday's event in the Monday morning newsletter.

Also, we've started our Spring Special, which is our best annual deal of the year. Pay for 12 months and you'll receive two additional months for free! It represents a 52% savings from our regular monthly rate. Lock in the savings now as our Spring Special will end on June 15th!

 

Happy trading!

Tom

The improvement of commodities started already back in early 2020. Looking at long-term (monthly) charts, that rally seems like one straight move higher.

This chart shows $GNX and GSG stacked on top of each other. ($GNX is the S&P GSCI Commodity Index and GSG is the iShares S&P GSCI Commodity-Indexed Trust, the ETF that tracks $GNX.) Just by eyeballing the two charts, you can immediately see this, despite the fact that they should mimic each other.

I have added two big arrows comparing the position of the recent low with the 1999 low. As you can see, the last low in GSG is below the 1999 low, while the last low in $GNX is well above the 1999 low. Going over the chart, you will find a few more of these highs and lows being out of whack compared with the index.

Is that a problem? Not really as long as you are aware and understand what is going on.

This index is calculated using 24 exchange-traded futures contracts on physical commodities. However, commodity futures markets are a bit less straightforward than cash equities. The prices for futures contracts with different maturities are not always at the same level. These effects are called contango and backwardation, and they need to be taken into account for the pricing of an ETF like GSG, as it can cause significant differences, particularly when comparing over very long periods of history.

I have also plotted the 12-month correlation between $GNX and GSG and, as you can see, that is almost at or very close to 1, with the exception of two periods in 2007 and 2010. What this means is that GSG moves very much in line with $GNX and, therefore, GSG can very well be used as the instrument to create exposure to the commodities market.

With the long-term turnaround now well underway and the recent confirmation of the underlying strength after breaking the falling resistance line, as well as the 2018 high, it makes sense to have a look inside the broad GSCI commodity index and see if any sectors are to be preferred.

The breakdown of $GNX

The S&P GSCI Commodity index, based on 24 futures contracts, is broken down into five sectors:

1. Energy - $GJX
2. Industrial Metals - $GYX
3. Precious Metals - $GPX
4. Agricultural - $GKX
5. Livestock - $GVX

The table below shows the exact breakdown and weights for the various futures contracts per sector. This image comes from S&P Dow Jones Indices, which publishes the new composition and weightings every year. If you click on the table, you will be taken to the complete document.

The five sectors in the index lend themselves very well for plotting on a Relative Rotation Graph. You can easily load this RRG from the predefined groups in the drop-down selection,

A few takeaways from this graph. First of all, it is very clear that $GJX (Energy) is the biggest weight. $GJX is alone inside the weakening quadrant and it needs all other sectors to be inside the improving quadrant. Within improving, Industrial Metals and Livestock tails are rolling over and gradually starting to move back down to the lagging quadrant. Precious Metals are still at a positive heading, but far to the left and very slowly starting to lose relative momentum, which probably makes it hard for this sector to reach leading in this rotational sequence.

Energy

Energy, inside weakening, has started to slow down on the momentum scale and the week-to-week observations are getting closer (lower RRG-Velocity), which increases the odds for a rotation back up to leading without going through lagging.

The price chart is confirming the underlying strength for Energy, as it just broke above the horizontal barrier around 220. This is opening up the way for more upside, which will definitely fuel a further improvement of relative strength (which already broke above its resistance at the start of the year and recently formed a new low around that breakout level).

Agricultural

The Agricultural sector is showing a long and strong tail inside the improving quadrant, close to crossing over into leading. The recent slow down on the JdK RS-Momentum scale is the result of the bounce-off, off resistance in the RS-line.

At first sight, the steepness of the rising channel on the price graph could be cause for concern. A break out of that channel could open up significant downside risk.

However, turning to the long-term monthly chart for this sector shows that we have just crossed above a major high that was set in 2014 near 425, which most likely will now start to serve as support.

So, even if $GKX would break its steep channel on the weekly chart, there will still be support offered around 425.

Especially when $GNX can pick up relative strength again in the coming weeks and move beyond the overhead resistance in relative strength, further outperformance may be expected for this sector.

#StaySafe and enjoy your weekend, --Julius

My regular blog is the RRG Charts blog. If you would like to receive a notification when a new article is published there, simply "Subscribe" with your email address

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A number of winning stocks that performed well last year and into the first quarter of this year have seen dramatic drops in price. A decline in high-multiple growth stocks amid increasing interest rates was one reason, while a shift away from lockdown stocks caused other areas to drop.

I'm on the lookout for turnarounds in these areas simply because when a stock reverses a downtrend, the potential upside can be very rewarding. I was tuned onto this years ago while working with a top-performing fund manager, who used a screen I helped develop called "hockey stick." The hockey stick screen would search for stocks that were at least 20% below a peak in price. From there, the stock would need to break back above its key moving averages on volume to signal the beginning stages of a potential reversal of its downtrend.

DAILY CHART OF WEST PHARMACEUTICAL SERVICES

Above is West Pharmaceutical (WST) - a stock I added to my MEM Edge Report last year after screening with my updated hockey stick screen. The new version has additional characteristics, such as positive RSI and MACD signals. Last April, WST broke back above each of its key moving averages on volume after a 3-week pullback.

As you can see highlighted above, the MACD also posted a positive signal, with the black line crossing above the red, while the RSI above simultaneously moved above the 50 level and into positive territory. WST went on to gain 85% before it was removed from my MEM Edge Suggested Holdings List after breaking below its key 50-day moving average on volume.

Let's take a look at two stocks that are beginning to show signs of reversing recent downtrends, but are not quite in a buy zone.

DAILY CHART OF BOSTON BEER CO. (SAM)

First up is Boston Beer Company (SAM), which peaked in price 6 weeks ago after posting quarterly earnings that were 246% above estimates. The company has seen great success with their hard seltzer product, which has been particularly popular among locked-down imbibers who were stuck at home.

SAM broke back above both its 10- and 21-day moving averages on news last month that they've set up a research lab in Canada to explore moving into cannabis beverages. While encouraging, the stock still has work to do before reversing its recent downtrend.

DAILY CHART OF AMKOR TECHNOLOGY (AMKR)

Next up is Small Cap Semiconductor stock Amkor Technology (AMKR). This stock first hit my hockey stick screen last fall, where I picked some up for my personal account after its break back above its 50-day simple moving average on volume following a sharp pullback. The stock went on to gain 85% before I sold it in April.

AMKR made the list again today following its break back above its 50-day moving average, after falling from an early April peak in price. Semiconductor stocks turned bullish 2 weeks ago as increased chip demand amid a shortage is improving the growth prospects for these stocks.

Amkor Tech is one of the largest providers of semiconductor packaging and test services with exposure to the smartphone and automotive spaces. The stock is not primed for further upside just yet as I'm on the lookout for high volume as the stock advances a bit higher.

While the move back into these formerly leading stocks is compelling, I'd keep new positions lighter than usual given the fact that the near-term outlook for inflation remains mixed. Higher-growth stocks, such as those highlighted above, tend to underperform under inflationary periods, as their future earnings will have a reduced value.

At this time, I'm keeping stocks on my MEM Edge Report diversified among cyclical areas, such as Energy, Industrials and Financials, that have strong growth prospects, while also highlighting select Technology stocks that are in confirmed uptrends. If you'd like access to this list of stocks as well as industry group and sector insights not found elsewhere, trial my bi-weekly MEM Edge Report for 4-weeks using this link here. You'll also receive Alert Reports throughout the week that point out sector rotation and stocks poised to benefit.

 

Warmly,

Mary Ellen McGonagle, MEM Investment Research

This is a copy of the "subscriber-only" DecisionPoint Weekly Wrap. It is posted each Friday for our subscribers and wraps up the week by analyzing daily and weekly charts. For more information on subscribing, click here.

Intermediate-Term Price Momentum Oscillator (PMO) signals are determined by weekly PMO crossovers. Additionally, they are only recorded after trading is finished on the final trading day of the week. You often will see an IT PMO signal occur during the week and then on Friday disappear. Since these are weekly readings, it is important to log signals at the end of the week.

Both the OEX and SPX (and the SPY) had weekly PMO negative crossovers which triggered the SELL signals. Both indexes have been forming long-term bearish rising wedges. Additionally, you'll note that the weekly RSIs are getting overbought. The market is ready for a correction, but we have seen prior weekly PMO declines not amount to much. Just keep it in context that we are seeing this deterioration on the weekly PMOs. The Dow nearly triggered the same IT PMO SELL signal and the NDX has been on a IT PMO SELL signal since April.

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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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Watch the latest episode of DecisionPoint on StockCharts TV's YouTube channel here!

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MAJOR MARKET INDEXES

For Friday:

 

For the week:

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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.

For Today:

For the Week:

CLICK HERE for Carl's annotated Sector charts.

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THE MARKET (S&P 500)

IT Trend Model: BUY as of 5/8/2020

LT Trend Model: BUY as of 6/8/2020

SPY Daily Chart: While SPY remained within the narrow trading range of the last two week, it closed on the day's high, which was a new, all-time high. The SPY rebounded off the 20-EMA and the confirmation line for the short-term double-bottom. The RSI is still positive and the PMO remained flat most of the week, topping briefly yesterday. The VIX rebounded off its EMA on the inverted scale which suggests there is some internal strength left.

Total Volume didn't really confirm today's rally as it dropped even further below its annual average.

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DON'T DELAY! IT'S FREE!

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SPY Weekly Chart: There is a large rising wedge on this chart, which is bearish. Also bearish is the weekly PMO, which has topped and crossed down through the signal line -- not always bearishly prescient, but usually so.

 

PARTICIPATION: The following chart uses different methodologies for objectively showing the depth and trend of participation for intermediate- and long-term time frames.

• The Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA).
• The Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA).
• The Bullish Percent Index (BPI) shows the percentage of SPX stocks on Point & Figure BUY signals.

The GCI had a negative crossover earlier in the week. As with the negative weekly PMO crossover SELL signal, you will generally see a pullback or correction after this occurs. However, we do note that we had a similar negative crossover in February and it came after the correction. This time we are coming out of the highest GCI reading in the history of this indicator (going back to 2017).

 

The BPI is technically in a rising trend, but did turn lower yesterday. The SCI topped below its signal line and is still inching lower.

 

Participation in the short and intermediate terms is in a rising trend and readings aren't that overbought. The %Stocks > 200-EMA or the long-term component, is trending lower in extremely overbought territory.

 

Climax Analysis: We didn't see any climax days this week, today included. New Highs have been trending lower this week. As noted earlier, the VIX looks bullish.

 

Short-Term Market Indicators: The short-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT.

The STOs contracted again today which tells us to expect flat or declining prices early next week. However, the rising trend in %PMOs rising and a reading over 50% suggest it won't be especially damaging.

 

Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is SOMEWHAT OVERBOUGHT. The market bias is BULLISH.

The ITBM/ITVM continue to rise but are beginning to get overbought. %PMO BUY signals continues to improve and is far from overbought.

 

CONCLUSION: This week the short-term technical picture began to deteriorate. Today's rally was impressive in size, but not in terms of volume; additionally, it was accompanied by declining STOs. The biggest concerns are the SCI topping beneath its signal line and the GCI's negative crossover its signal line in overbought territory. While IT indicators are improving (ITBM/ITVM, %PMO BUY signals), the SCI and GCI are flashing "Warning, Will Robinson, warning!" Next week we should proceed with caution.

 

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BITCOIN

The dominant feature on this chart is a great rounded top formation. The next is a bearish reverse pennant formation. All of this points toward lower Bitcoin prices, potentially down to 10,000; however, let us not forget that some future context could dwarf the rounded top and obviate its significance. Case in point is the parabolic breakdown that we saw earlier this year. At the time, it was huge and significant. Now, in the context of subsequent price movement, not so much. Nevertheless, Bitcoin is in a bear market, and the technical signs tell us price will probably go lower. And experience tells us that a decline of about -50% is frequently enough to complete a bear market.

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INTEREST RATES

Rates began to rebound this week, but finished much lower. Support is now being hit on the longer-term yields.

 

10-YEAR T-BOND YIELD

The long-term rising trend was broken today on $TNX. Losing the rising trend is significant, but price support hasn't been tested.

 

MORTGAGE INTEREST RATES (30-Yr)

We want to watch the 30-Year Fixed Mortgage Interest Rate, because, for the most part, people buy homes based upon the maximum monthly payment they can afford. As rates rise, a fixed monthly payment will carry a smaller mortgage amount. (See table.) As mortgages are forced to shrink, real estate prices will have to fall, and many sellers will increasingly find that they are upside down with their mortgage.

Rates have been dropping since the beginning of April, but they are beginning to reverse. Housing prices are moving up exponentially. My house has gained over 20% in value the past few months. That is parabolic. They end with a blood bath--swift, large and very painful declines.

 

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DOLLAR (UUP)

IT Trend Model: SELL as of 4/26/2021

LT Trend Model: SELL as of 7/10/2020

UUP Daily Chart: The Dollar did begin to form a rising trend this week, but UUP overall is struggling to rally. Price simply cannot stay above the 20-EMA. The PMO suggests we will see this rally continue, but all of us know that the government is and will be printing money and the consequence will be a declining Dollar.

This support level is crucial for UUP to hold. It has managed to avoid losing this support level.

 

UUP Weekly Chart: UUP very nearly triggered an IT PMO SELL signal this week, but on the short-term rising trend established this week, the signal was avoided. We can see that this support level also matches up with the late 2017 top and the 2018 trough. If this level is lost, we should expect to see the Dollar (UUP) to move toward support at $22.50.

 

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GOLD

IT Trend Model: BUY as of 5/3/2021

LT Trend Model: BUYas of 5/21/2021

GOLD Daily Chart: Gold rebounded after gapping down on the Dollar's strong rally yesterday. With the Dollar moving lower, Gold was able to rally, but hasn't recaptured the rising trend yet.

$GOLD dropped below the 20-EMA but managed to close higher. The PMO was lining up for a crossover SELL signal, but that has been avoided for now.

 

GOLD Weekly Chart: The weekly chart is very favorable for Gold. The weekly RSI is positive and the weekly PMO is rising on an oversold crossover BUY signal. Gold was overbought and it is time for it to digest the rally.

 

GOLD MINERS Golden and Silver Cross Indexes: After arcing increasingly upward from the March low, GDX began moving sideways in mid-May. Hope of a sideways correction was lost this week when it broke down. It is simply a case of price moving too far above the original rising trend line, and a good downside target would be where the rising trend line offers support.

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CRUDE OIL (USO)

IT Trend Model: BUY as of 11/23/2020

LT Trend Model: BUY as of 3/9/2021

USO Daily Chart: USO broke out this week and rallied strongly. The PMO is on a BUY signal and the RSI is positive. This breakout came out of a bearish rising wedge. A bullish conclusion to a bearish chart pattern is particularly bullish so we expect Crude Oil prices to continue higher.

 

USO/$WTIC Weekly Chart: Overhead resistance on $WTIC was likely the reason we didn't see the breakout on USO sooner. The weekly PMO is rising, albeit somewhat overbought. The RSI is nearing overbought territory. Still, we expect to see USO eventually reach $60.

 

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BONDS (TLT)

IT Trend Model: NEUTRAL as of 8/27/2020

LT Trend Model: SELL as of 1/8/2021

TLT Daily Chart: Rising yields have put pressure on TLT. Today's drop offered TLT a breakout opportunity. It did get back above the 50-EMA, but overhead resistance is nearing and this has been a failure point since the 50-EMA crossed below the 200-EMA.

The PMO has now entered positive territory and is rising slightly. The RSI remained in positive territory despite the short-term declining trend. Yields are nearing support and TLT is nearing resistance. More than likely we will finally see TLT breakout. Today's deep decline in yields suggest they will not hold support which will put the wind at the back of long-term Bonds.

 

TLT Weekly Chart: The weekly chart also suggests we will see the breakout. There is a small bullish double-bottom on the weekly chart and the weekly PMO is nearing a crossover BUY signal. The weekly RSI is still weak, but it is rising.

 

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Technical Analysis is a windsock, not a crystal ball.

-- Carl & 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.

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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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While the commodity trades have been working, it seems that the broader indexes just can't get running higher. The Nasdaq has done nothing for 7 days. The relative strength in the purple shading shows the weakness compared to the $SPX.

But now we have come to a crossroads. We are making a lower high on the right shoulder, which continues to look like a typical topping pattern. The PPO failing to achieve any sort of strength on the bounce is another clue that we are struggling with upside momentum.

When we look at a 60-minute chart, it also shows the lack of conviction higher.

The $SPX is not much better, but it is a little. However, we still have not moved much from the April 16th Options Expiration date or the last Fed meeting on April 28th.

Commodities have been powering higher, and more commodity-related companies trade on the NYSE or the AMEX.

So, the question is: Will the Nasdaq topping structure roll over and pull all of the charts down?

I was chatting with a new home sales person who is also the neighbourhood developer. He gave me a shocking statistic. At the start of the year, they had some starter homes pricing at $350K. With all of the construction material increases, including cement, lumber, drywall, shingles etc. the uptick in costs is $100k, so the starter home has moved from $350K to $450k in 6 months! These are Canadian dollars, and homes here have basements so the cost structure might be a higher number than most people associate with a starter home. The amazing message is that commodities have really surged and may impair a lot of sales in the second half. Not just in housing, but cars and new energy sources, like wind farms and solar farms.

A finance manager for a group of dealerships was mentioning they have a massive showroom with only 8 cars in it. Trucks are so backlogged.

So where does that leave us in the markets?

We all know the price of lumber has soared. Oil just broke to 3 year highs. Gasoline is a pump handle away from 7-year highs. When we look at sector rotation, commodity highs typically line up with the stock market topping. Notice when energy and materials are doing well, that coincides with a stock market top. The chart shows the stock market topping out before the real economic data starts to top out.

Now this can be on the basis of an intermediate term top that lasts through the summer, or it can be a longer term primary top. The last 20 days have seen the growth sectors rally, and real estate is having a great surge. The weakness in consumer discretionary might be the price inflation coming at us, slowing down the economic momentum.

I recently did a world insights video looking at stock markets around the world. They are all breaking to new highs.

World Market Insights

It would seem that, once COVID vaccinations are able to curtail the virus, we will be able to get back to normal densities of people working inside factories and sawmills, providing more materials to the market, which will help pause this massive inflationary pressure. Without question, starter home prices can't really climb $100k every 6-months and expect home buyers to be able to afford that with rising rates. It's time to watch closely to see if it is just a summer pullback coming our way.