It's been a pretty interesting Christmas week so far. On Christmas Eve, Santa definitely stayed away as the market tumbled into deep lows. Today, however, it would appear that Santa finally arrived. Yes, Virginia, apparently there is a Santa Claus - for the market. So enjoy some holiday champagne as the market continues to rally and clear oversold conditions. Be careful, though; oversold conditions in a bear market are dangerous. The hangover could be bad after the new year.
DecisionPoint Alert presents a mid-week assessment of the trend and condition of the stock market (S&P 500), the U.S. Dollar, Gold, Crude Oil and Bonds.
SECTORS
Each S&P 500 Index component stock is assigned to one (and only one) of eleven major sectors. This is a snapshot of the Intermediate-Term and Long-Term Trend Model signal status for those sectors.
STOCKS
IT Trend Model: Neutral as of 10/15/2018
LT Trend Model: SELL as of 12/14/2018
SPX Daily Chart: The waterfall decline of the market since the beginning of December is stunning. Although we did see an excellent bounce of almost 5% for the SPX today, the declining trend doesn't appear broken yet based on the thumbnail. In fact, we logged a new intraday low for the year today. I am looking for some follow-through on today's bounce, but only for the short term. The PMO is decelerating, which is positive, and short-term indicators look good.
Climactic Market Indicators: Climactic readings continue on the breadth indicators. Yes, we did receive two very nice green spikes on net A-D numbers, but New Lows are still extremely high, despite pulling back a bit. Price has been riding the Bollinger Bands down, which has confused things. Typically, we see quick penetrations of the Bollinger Bands that mark price highs and lows. Right now, every day has seen punctures. I do see today's action and breadth/VIX readings as a "buying initiation" in the very short term (meaning the next trading day or two).
Short-Term Market Indicators: These indicators are extremely oversold and have now turned up. This is typically a very bullish sign in a bull market. However, in a bear market, I consider these conditions to be "thin ice" oversold. We certainly could see a rally follow-on, but it doesn't mean the worst is over. Volatility is high and I don't see any indication that it is settling down.
Intermediate-Term Market Indicators: I added Fibonacci lines to this price chart, as the various support levels are a near-perfect match for those levels of retracement. A bounce at 2300 makes sense. The question is whether we can recapture support at the Feb/March lows. While these indicators are decelerating, remember that oversold conditions don't necessarily translate to "new bull market." I think these indicators could support a longer-term rally, but I don't think they are indicative of a bull market resumption.
Conclusion: The market cannot rise every day, nor can it decline every day. I still believe we are in a bear market and we will see these moves all along the way down. It is extraordinarily tricky to trade in a volatile environment, let alone in a bear market. I'm still completely out of the market in all timeframes. I am thinking of adding metals to my portfolio and possibly bonds. I don't think right now is the time as a relief rally should continue longer.
DOLLAR (UUP)
IT Trend Model: BUY as of 4/24/2018
LT Trend Model: BUY as of 5/25/2018
UUP Daily Chart: The Dollar is still in a rising trend channel. The PMO is turning up. I'm looking for the Dollar to remain in this gently rising trend channel and make a move toward the top of it (around $26).
GOLD
IT Trend Model: BUY as of 10/19/2018
LT Trend Model: SELL as of 6/22/2018
GOLD Daily Chart: Gold is inching toward overhead resistance at the 1310 level. As long as the market remains bearish and investors remain cautious, Gold should be a good hedge. The PMO is getting overbought, but certainly isn't at extremes, so more upside price movement is probable.
CRUDE OIL (USO)
IT Trend Model: Neutral as of 10/29/2018
LT Trend Model: SELL as of 11/23/2018
USO Daily Chart: Oil may have found a bottom. The last two PMO bottoms are about even or in a slight rising trend. Note that price bottoms are clearly declining, which is a positive divergence. I wouldn't be surprised to see price make a move to $10.50.
BONDS (TLT)
IT Trend Model: BUY as of 12/6/2018
LT Trend Model: SELL as of 9/18/2018
TLT Daily Chart: As noted in today's title, I am looking at a likely island reversal situation on TLT's price chart. Basically, price gapped up and then consolidated sideways without closing the original gap. Looking at the topping PMO, a closure of that gap is likely as investors become less bearish, given today's boomerang move to the upside for the market. It is likely we will only see price back off to the 200-EMA before resuming its rally.
Technical Analysis is a windsock, not a crystal ball.
Happy Charting!
- Erin
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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 on moving average relationships, but they do not necessarily call for a specific action. They are information flags that should prompt chart review. Furthermore, 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)
