DecisionPoint

DP Market Update: Double-Bottom Aborts - January 27, 2015

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Earnings from big companies like Microsoft, P&G and Caterpillar were disappointing and are taking some of the blame for today's drop. On the flip side, Apple crushed previous estimates, but it didn't save it from the tidal wave of selling in the general market, moving 3.5% lower. It's already up 5.5% in after hours trading.



The purpose of the DecisionPoint Market 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. 


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

DECISIONPOINT ALERT DAILY REPORT
Tuesday, 1/27/2015

************************ 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     01/27   Points  Percent   Prev Signal
Index               Posture     Date Elap  @Start     Close      P/L      P/L     P/L  Days
------------------- ------- -------- ---- -------   -------  -------  ------- ------- -----
Stocks Medium-Term  Bullish 10/31/14   88   200.55   202.74    +2.19    +1.1%
Stocks Long-Term    Bullish 10/31/14   88   200.55   202.74    +2.19    +1.1%
Gold (NY Spot)      Bullish 01/12/15   15  1233.40  1291.70   +58.30    +4.7%
20+Yr T-Bond  (TLT) Bullish 01/17/14  375   102.43   134.57   +32.14   +31.4%
------------------- ------- -------- ---- -------   -------  -------  ------- ------- -----
Dollar Index  (UUP) Bullish 07/21/14  190    21.47    24.93    +3.46   +16.1%
Commodities   (GSG) Neutral 07/14/14  197    32.64    19.32     ....     ....
Crude Oil     (USO) Neutral 07/30/14  181    36.92    17.21     ....     ....
------------------- ------- -------- ---- -------   -------  -------  ------- ------- -----
S&P 500       (SPY)     BUY 10/31/14   88   200.55   202.74    +2.19    +1.1%
S&P Equal Wt  (RSP)     BUY 11/03/14   85    77.77    79.19    +1.42    +1.8%
Dow           (DIA)     BUY 10/31/14   88   172.49   173.59    +1.10    +0.6%
Nasdaq 100    (QQQ)     BUY 10/29/14   90    99.44   101.50    +2.06    +2.1%
NDX Equal Wt (QQEW)     BUY 10/30/14   89    40.52    42.23    +1.71    +4.2%
S&P 100       (OEF)     BUY 10/31/14   88    88.84    89.07    +0.23    +0.3%
S&P 400 MidCp (IJH)     BUY 11/05/14   83   141.11   145.82    +4.71    +3.3%
S&P 600 SmlCp (IJR)     BUY 11/03/14   85   110.95   112.66    +1.71    +1.5%
Total Market  (VTI)     BUY 11/03/14   85   103.53   104.95    +1.42    +1.4%
Consumer Disc (XLY)     BUY 11/05/14   83    67.27    70.73    +3.46    +5.1%
Cons Disc EWt (RCD)     BUY 11/03/14   85    82.65    86.89    +4.24    +5.1%
Consumer Stpl (XLP)     BUY 08/20/14  160    44.27    49.08    +4.81   +10.9%
Cons Stpl EWt (RHS)     BUY 10/21/14   98    97.79   106.54    +8.75    +8.9%
Energy        (XLE) Neutral 09/08/14  141    94.49    77.71     ....     ....
Energy EWt    (RYE) Neutral 09/08/14  141    86.56    65.77     ....     ....
Financial     (XLF) Neutral 01/20/15    7    23.39    23.63     ....     ....
Financial EWt (RYF)     BUY 10/30/14   89    42.45    43.69    +1.24    +2.9%
Health Care   (XLV)     BUY 10/23/14   96    64.07    70.80    +6.73   +10.5%
Health Cr EWt (RYH)     BUY 05/09/14  263   115.84   146.48   +30.64   +26.5%
Industrial    (XLI)     BUY 10/30/14   89    54.37    55.32    +0.95    +1.7%
Industrl EWt  (RGI) Neutral 01/27/15    0    87.50    87.50 * Changed Today *   -1.2%     1
Materials     (XLB) Neutral 01/06/15   21    46.99    48.13     ....     ....
Materials EWt (RTM)     BUY 01/23/15    4    83.59    83.82    +0.23    +0.3%
Technology    (XLK)     BUY 10/31/14   88    40.33    40.09    -0.24    -0.6%
Technolgy EWt (RYT)     BUY 11/04/14   84    87.04    88.00    +0.96    +1.1%
Utilities     (XLU)     BUY 08/28/14  152    42.24    49.18    +6.94   +16.4%
Utilities EWt (RYU)     BUY 08/20/14  160    71.41    81.10    +9.69   +13.6%

Average                                94                               +5.4%

The Industrials equal-weighted ETF (RGI) suffered another whipsaw Trend Model signal change. After the 20-EMA crossed above the 50-EMA yesterday which generated a BUY signal. Yet today, the 20-EMA crossed back below the 50-EMA returning the Trend Model signal to Neutral. It's amazing the difference a day makes. The PMO was reaching toward a positive crossover and now has turned down below its EMA which is especially bearish.

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.

Price was stopped and turned away at the blue dotted neckline and consequently, aborted the double-bottom pattern. Price also had a short-term breakdown with today's trading. Adding to the problem, the PMO turned down before crossing above its EMA which is very bearish in the short term. Our Trend Model is quite vulnerable to a switch to a Neutral signal should the 20-EMA cross below the 50-EMA. The market has been spending its time within a consolidation zone so in the short term, we could see price move to the bottom of the range.

Ultra-Short-Term Indicators: Breadth indicates that selling was the predominant theme, but the CVI and Participation Index - DOWN are not especially climactic.

Short-Term Indicators: I was concerned these indicators were overbought and vulnerable to a top. Sure enough, today's decline was enough to turn them down which is short-term bearish.

Intermediate-Term Indicators: The ITBM did not turn down and remains above its EMA but the ITVM did turn down and fell back below its EMA. The VTO is rising. Intermediate term as a whole is neutral in my opinion.

Conclusion: The picture was very bullish yesterday except for the failed test of resistance at the neckline. Tomorrow will be the end of the FMOC meetings and minutes will be released. I suspect they will simply continue the same tune. This could reassure investors but more earnings are due and expectations are now lower given the failure of some of the higher cap companies to meet expectations. Indicators aren't promising right now either.


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 had broken out, but returned to the rising trend channel. The PMO appears to be topping in overbought territory.


GOLD: As of 1/12/2015 Gold is on a Trend Model BUY 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.

Gold has been able to successfully close above support since breaking out. Looking at the thumbnail, it appears there is a bullish flag formation. If it were to execute with a breakout above the flag, the minimum upside target would likely be right around horizontal resistance at the March 2014 high.

One problem is that the PMO is overbought and does appear to be decelerating. There is technically still more room for the PMO to rise before hitting overbought extremes but it is definitely in the danger zone right now.


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.

USO has been thinking about bottoming, but has been unable to put the brakes on the current decline. As I noted in Friday's review, I wouldn't expect USO to stop its decline until the price of Oil is able to break out of the declining trend channel it has been in since mid-December.


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.

Bonds continue to rise but have formed a bearish ascending wedge. The PMO has been hesitating for the past two weeks which is not positive.


Technical Analysis is a windsock, not a crystal ball.

**Join me for my first webinar tomorrow, Wednesday at 4:30pm Eastern. You can click here to register.**

Happy Charting!
- Erin

Erin Swenlin
About the author: is a co-founder of the DecisionPoint.com 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 StockCharts.com. 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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