DP Weekly Update: Bearish Wedges


Yesterday I was able to annotate very short-term trend lines on the 10-minute bar chart. A bearish ascending wedge is visible and while price broke below in the 20 minutes of trading it did manage to close above. I don't think that this is the execution of this pattern. Recall that the ascending wedge pattern has the expectation of a breakdown. Unfortunately, unlike a flag formation which has a "target" if the pattern executes, a breakdown from the wedge is anticipated but it doesn't indicate how far it will decline.

The purpose of the DecisionPoint Daily Update is to quickly review the day's action, internal condition, and Trend Model status of the broad market (S&P 500), the nine SPDR Sectors, the U.S. Dollar, Gold, Crude Oil, and Bonds. To ensure that using this daily reference will be quick and painless, we are as brief as possible, and often we let a chart speak for itself.

SIGNALS: Here we include the current day's signal table, an excerpt from the DecisionPoint Alert Daily Report.

Friday, 12/5/2014

************************ DECISIONPOINT MARKET POSTURE ***********************

The following is the market posture suggested by our mechanical trend-
following tools. These are not trading recommendations, rather they are price
activity flags that should be qualified by chart analysis. The Trend Model is
used on all indexes.

                                     Days   Index     12/05   Points  Percent
Index               Posture     Date Elap  @Start     Close      P/L      P/L
------------------- ------- -------- ---- -------   -------  -------  -------
Stocks Medium-Term  Bullish 10/31/14   35   201.66   208.00    +6.34    +3.1%
Stocks Long-Term    Bullish 10/31/14   35   201.66   208.00    +6.34    +3.1%
Gold (NY Spot)      Bearish 08/21/14  106  1275.40  1190.40   +85.00    +6.7%
20+Yr T-Bond  (TLT) Bullish 01/17/14  322   102.65   121.09   +18.44   +18.0%
------------------- ------- -------- ---- -------   -------  -------  -------
Dollar Index  (UUP) Bullish 07/21/14  137    21.47    23.71    +2.24   +10.4%
Commodities   (GSG) Neutral 07/14/14  144    32.64    24.33     ....     ....
Crude Oil     (USO) Neutral 07/30/14  128    36.92    24.96     ....     ....
------------------- ------- -------- ---- -------   -------  -------  -------
S&P 500       (SPY)     BUY 10/31/14   35   201.66   208.00    +6.34    +3.1%
S&P Equal Wt  (RSP)     BUY 11/03/14   32    78.10    80.42    +2.32    +3.0%
Dow           (DIA)     BUY 10/31/14   35   173.01   179.51    +6.50    +3.8%
Nasdaq 100    (QQQ)     BUY 10/29/14   37    99.81   105.38    +5.57    +5.6%
NDX Equal Wt (QQEW)     BUY 10/30/14   36    40.66    43.34    +2.68    +6.6%
S&P 100       (OEF)     BUY 10/31/14   35    89.75    92.39    +2.64    +2.9%
S&P 400 MidCp (IJH)     BUY 11/05/14   30   141.76   144.52    +2.76    +1.9%
S&P 600 SmlCp (IJR)     BUY 11/03/14   32   111.40   112.28    +0.88    +0.8%
Total Market  (VTI)     BUY 11/03/14   32   104.08   106.95    +2.87    +2.8%
Consumer Disc (XLY)     BUY 11/05/14   30    67.55    71.53    +3.98    +5.9%
Cons Disc EWt (RCD)     BUY 11/03/14   32    82.86    87.58    +4.72    +5.7%
Consumer Stpl (XLP)     BUY 08/20/14  107    44.59    48.85    +4.26    +9.6%
Cons Stpl EWt (RHS)     BUY 10/21/14   45    98.15   104.48    +6.33    +6.4%
Energy        (XLE) Neutral 09/08/14   88    95.08    80.28     ....     ....
Energy EWt    (RYE) Neutral 09/08/14   88    87.04    68.93     ....     ....
Financial     (XLF)     BUY 10/29/14   37    23.44    24.82    +1.38    +5.9%
Financial EWt (RYF)     BUY 10/30/14   36    42.64    44.64    +2.00    +4.7%
Health Care   (XLV)     BUY 10/23/14   43    64.31    70.79    +6.48   +10.1%
Health Cr EWt (RYH)     BUY 05/09/14  210   115.95   144.91   +28.96   +25.0%
Industrial    (XLI)     BUY 10/30/14   36    54.67    57.26    +2.59    +4.7%
Industrl EWt  (RGI)     BUY 10/31/14   35    87.96    90.83    +2.87    +3.3%
Materials     (XLB)     BUY 11/18/14   17    49.87    49.77    -0.10    -0.2%
Materials EWt (RTM)     BUY 11/17/14   18    84.00    85.25    +1.25    +1.5%
Technology    (XLK)     BUY 10/31/14   35    40.54    42.12    +1.58    +3.9%
Technolgy EWt (RYT)     BUY 11/04/14   31    87.51    92.11    +4.60    +5.3%
Utilities     (XLU)     BUY 08/28/14   99    42.62    45.87    +3.25    +7.6%
Utilities EWt (RYU)     BUY 08/20/14  107    71.92    77.14    +5.22    +7.3%

Average                                52                               +5.5%

NOTE: Mechanical trading model signals 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 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.

STOCKS: Based upon a 10/31/2014 Trend Model BUY signal, our current intermediate-term market posture for the S&P 500 (SPY) is bullish. The Trend Model, which informs our long-term outlook, is on a BUY signal as of 10/31/2014 so our long-term posture is bullish.

Like the 10-minute bar chart above, there is a bearish wedge on the six month SPY chart. The expectation is a breakdown. I've annotated possible support around 202, so a breakdown might not be that painful. The PMO dropped another hundredth of a point. The readings for the PMO have drifted between 1.50 to 1.48 all week which is about as flat as the PMO can get. 

Price has been hugging overhead resistance in the long-term rising trend channel on the weekly chart. Interestingly the correction in October hit right on long-term support and the bounce has hit the top of the channel. The PMO is rising, so in the very long-term there is a bullish bias.

Ultra-Short-Term Indicators: With these indicators, we are looking for climactic readings or spikes. They were relatively quiet all week long and thus are considered neutral.

Short-Term Indicators: The STVO, the STO-B and STO-V have been in a declining trend which is bearish. The readings are neutral in their location (near zero), but bearish as they are continuing their decline.

Intermediate-Term Indicators: They are taking their time moving out of overbought territory. It is very bearish that the negative crossovers occurred on the ITBM and ITVM in very overbought territory. 

Conclusion: The PMO is overbought on the SPY and flat. Add the bearish wedge and a decline seems very likely. Our bearish short- and intermediate-term indicators also suggest a price decline. Even the weekly chart shows price hitting overhead resistance, shoring up the possibility that price will decline back down to the bottom of the channel around 1900 on the $SPX weekly chart. 

DOLLAR: As of 7/21/2014 the US Dollar Index ETF (UUP) is on a Trend Model BUY signal. The LT Trend Model, which informs our long-term outlook, is on a BUY signal as of 8/21/2014, so our long-term posture is bullish.

The dollar broke through overhead resistance but finished the day closing right on top of the rising trend channel. The PMO has been asleep at the wheel, traveling sideways since November. Also note how long it has been sitting in mostly overbought territory.

The weekly chart illustrates how price broke above horizontal resistance at the July top and had been clustering since. Looking at the thumbnail, one could make a case for a bull flag formation that has executed. Interestingly the minimum upside target for that flag would put price right around the next line of possible resistance. 

GOLD: As of 8/21/2014 Gold is on a Trend Model SELL signal. The LT Trend Model, which informs our long-term outlook, is on a SELL signal as of 2/15/2013, so our long-term posture is bearish.

The weekly chart for gold shows horizontal support being broken and declining tops line resistance that continues to hold. This could be viewed as a bearish descending triangle pattern. Price has not broken through the 20-EMA, adding to the bearish outlook for gold.

CRUDE OIL (USO): As of 7/30/2014 United States Oil Fund (USO) is on a Trend Model NEUTRAL signal. The LT Trend Model, which informs our long-term outlook, is on a SELL signal as of 8/28/2014, so our long-term posture is bearish.

The weekly chart shows clear support at the 2009 low and price declined this week far enough to nearly reach the minimum downside target foretold by the execution of the bear flag. Another problem for USO, the weekly PMO reading has dropped to territory not seen since 2009.

BONDS (TLT): As of 1/17/2014 The 20+ Year T-Bonds ETF (TLT) is on a Trend Model BUY signal. The LT Trend Model, which informs our long-term outlook, is on a BUY signal as of 3/24/2014, so our long-term posture is bullish.

TLT's weekly chart shows price reaching toward a new all-time closing high above overhead resistance at the July top. The weekly PMO is rising and is not yet overbought. There is upside potential, but I'd wait for a breakout before considering entry.

Technical Analysis is a windsock, not a crystal ball.

Happy Charting!
- Erin

Erin Swenlin
About the author: is a co-founder of the website along with her father, Carl Swenlin. She launched the DecisionPoint daily blog in 2009 alongside Carl and now serves as a consulting technical analyst and blog contributor at Erin is an active Member of the CMT Association. She holds a Master's degree in Information Resource Management from the Air Force Institute of Technology as well as a Bachelor's degree in Mathematics from the University of Southern California. Learn More
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