June has been a tedious month for the market with SPY being confined mostly within a three point range. I can't help noticing the rounded shape of June's price activity, which makes me think we may be seeing a rounded top leading to a period of falling prices. Ha! How refreshing that would be, but the bull market has been very stingy in that regard. Nevertheless, the PMO SELL signal for SPY says there is a chance of some bearish action.
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.
STOCKS
IT Trend Model: BUY as of 11/15/2016
LT Trend Model: BUY as of 4/1/2016
Price is still well above the bull market rising trend line, and it needs to move closer to it. The PMO SELL signal offers some evidence that the corrective action will likely take place.
The cyclical bull market, visible on the weekly chart, launched off the February 2016 low, and it remains quite robust. The weekly PMO is falling, and implies that price may move back to the rising trend line.
On the monthly chart the rising trend line drawn from the 2009 low defines the current secular bull market. The amount of departure from that line is excessive and needs to close somewhat. The two shorter, more accelerated trend lines are evidence of the start of a parabolic price rise.
Short-Term Market Indicators: These indicators are neutral and not much help at this time.
Intermediate-Term Market Indicators: In this time frame internals are about neutral and are trending in a negative direction.
Conclusion: The charts are telling me that the market is vulnerable right now, but we are in a strong bull market, and that can make a market bulletproof. Bull markets are like that. We can see negative setups, but nothing much happens. The market needs to correct, but it just can't seem to go down. At any rate, I am still expecting price to move sideways or down for a few more weeks. While we are due for a sharp correction, there were two days this week (Tuesday and Thursday) that looked like selling was beginning, but there was no follow through the following day. The market doesn't want to go down. Next week will probably be relatively boring because it is shortened by Independence Day.
DOLLAR
IT Trend Model: NEUTRAL as of 3/21/2016
LT Trend Model: SELL as of 5/24/2017
A falling wedge formation dominates most of 2017. The normal expectation is for price to break up and out of that formation, but UUP collapsed downward instead. After several weeks of chop, UUP continued lower this week. The daily PMO has topped and crossed down through its signal line, so we should expect more decline ahead.
The weekly chart shows a lot of price congestion in 2016, wherein UUP could find support for a bottom. Failing that, the most obvious downside target is the horizontal support at 24.00.
To get a really long-term look we need to switch to the the U.S. Dollar Index ($USD). We can see that $USD broke down from a rising wedge formation, which is what we would normally expect. The monthly PMO topped below its signal line and is falling -- a very negative configuration.
GOLD
IT Trend Model: NEUTRAL as of 6/29/2017
LT Trend Model: BUY as of 4/12/2017
Even though the dollar had a bad week, gold was so weak the Intermediate-Term Trend Model switched from BUY to NEUTRAL on Thursday. Price has been moving mostly sideways since February, so more whipsaw could be in store.
The gold weekly chart is not encouraging. The weekly PMO has topped, and price is beginning to look like it is rolling over below the long-term declining tops line.
The monthly chart shows that after a parabolic rise, gold hit an all-time high in 2011. A parabolic collapse followed, and gold has pulled back almost -50%. The bounce off the 2015 lows offered hope of a new gold bull market, but price stalled at the long-term declining tops line. The monthly PMO is barely rising. My outlook is slightly optimistic, but my optimism is fading.
CRUDE OIL (USO)
IT Trend Model: NEUTRAL as of 3/8/2017
LT Trend Model: SELL as of 3/9/2017
USO continued its dramatic breakdown last week, but this week a nice bounce caused the daily PMO to turn up and cross through its signal line. This probably means another week or two of rally.
Last week USO broke down through an important support line, and this week price bounced back up to that line. The USO weekly PMO is still falling, but it has decelerated somewhat.
Because it has much deeper historical data, I am switching to the $WTIC monthly chart for a long-term view. This chart shows the 2008 collapse of a parabolic up move. In 2009 there was a pretty vigorous rebound, but price seems to be returning to the $10 to $30 trading range of yesteryear, where it will presumably enter a long-term basing pattern. Considering the fundamentals of the crude oil market, this outcome doesn't seem farfetched at all. Note that the monthly PMO is about to top below the zero line, which is a very negative configuration.
BONDS (TLT)
IT Trend Model: BUY as of 3/31/2017
LT Trend Model: BUY as of 6/16/2017
Earlier this month TLT broke above an important declining tops line, but this week it snapped all the way back to that line. A snapback is the normal technical expectation, but this move was rather more vigorous that normal. The daily PMO has topped and crossed down through its signal line, generating a PMO SELL signal, so the correction is probably not over.
The weekly PMO has decelerated and may be about to top.
For the monthly chart let me switch to the 30-year treasury bond ($USB) because it has more historical data. Note the parabolic up move that took price out of a multi-decade trend channel. The parabolic broke down, and bonds are in the process of correcting the excess of that final (?) up move. This chart offers some hope that interest rates may be on their way back up to normal levels.
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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
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
