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Everything was running smoothly as the market broke above the previous week's trading range. And then...bah bah baaaaah... stimulus talks not only stalled, but were over as far as the president was concerned based on his Twitter feed. The market spiraled lower on the news, but did seem to slow the descent before encountering the gap on the 10-minute bar chart below. The RSI is very oversold, but I'm not counting on that to propel a rally. Looking at the charts and discussing the spike in positive breadth yesterday evening with Carl, he agreed with me that it was a buying exhaustion. Well, neither of us felt too great about the call this morning, but the pieces of the puzzle began to fall into place when the market dove. The tweet could certainly be the entire reason for this afternoon's failure, but I suspect the market was primed for this buying exhaustion based on yesterday's climactic indicators chart. Today we got very high negative breadth readings which is an indication of a selling "initiation impulse" or simply the manifestation of the buying exhaustion detected yesterday.
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DP INDEX SCOREBOARDS:
TODAY'S Broad Market Action:
One WEEK Results:
Top 10 from ETF Tracker:
Bottom 10 from ETF Tracker:
On Friday, the DecisionPoint Alert Weekly Wrap presents an assessment of the trend and condition of the stock market (S&P 500), the U.S. Dollar, Gold, Crude Oil, and Bonds. Monday through Thursday the DecisionPoint Alert daily report is abbreviated and covers changes for the day.
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SECTORS
SIGNALS:
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.
TODAY'S RESULTS:
One WEEK Results:
STOCKS
IT Trend Model: BUY as of 5/8/2020
LT Trend Model: BUY as of 6/8/2020
SPY Daily Chart: The RSI is still positive and I can make out a possible bullish reverse head and shoulders in September. Additionally the PMO has nearly given us a crossover BUY signal. The PMO flattened today and avoided that BUY signal. If it is a reverse head and shoulders, the minimum upside target would only get is to all-time highs, not necessarily above them.
Climactic Market Indicators: Now we have climactic readings on the negative side. I note that we did see an expansion of New Highs, but at the all-time high, you can see the similarities. Volume finally increased, likely on the reversal which isn't good. The VIX popped briefly below its lower Bollinger Band which generally is a signpost that a rally might be ahead. However, those Bands have been squeezed so much, I don't think that is a valid assumption. The increase in the VIX came in after the tweet. Remember that the BB squeeze will only be alleviated when volatility begins to increase and typically, that is bearish, not bullish. Breadth tells me that this is a selling initiation impulse.
Short-Term Market Indicators: The short-term market trend is UP and the condition is OVERBOUGHT. Based upon the STO ranges, market bias is BULLISH.
Our other indicators aren't that bearish. Readings are still positive on the STOs. Problem is they are overbought and declining. Note also the %Stocks indicators moving quickly lower.
Intermediate-Term Market Indicators: 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.
All of these indicators are rising which is bullish for the intermediate term.
The intermediate-term market trend is DOWN and the condition is NEUTRAL. The market bias is NEUTRAL.
ITBM and ITVM have now reached positive territory which is bullish. %Stocks with PMO crossover BUY signals is not overbought and moved over 50% for the first time since August. The intermediate term doesn't look as problematic as the short term.
CONCLUSION: Today's midday reversal was certainly triggered by the president, but the frenzy that came after was likely set up due to the climactic positive readings that spelled out a buying exhaustion yesterday. Had we not seen this big reversal today, I would still be looking at a possible buying exhaustion. I think the tweet was a catalyst to something that was already percolating. Overall the intermediate term looks okay, the short term is the problem. Consider your stops and exercise caution in the very short term.
DOLLAR (UUP)
IT Trend Model: NEUTRAL as of 5/28/2020
LT Trend Model: SELL as of 7/10/2020
UUP Daily Chart: The cup and handle pattern continues to mature. The expectation is an upside breakout. The PMO has reached positive territory and the RSI is back in positive territory. I'll be watching to see if the declining tops trendline that forms the "handle" in the pattern is penetrated. That could finally trigger this pattern.
GOLD
IT Trend Model: BUY as of 3/24/2020
LT Trend Model: BUY as of 1/8/2019
GOLD Daily Chart: Gold dropped and remains underneath overhead resistance at the 2011 top. With this short-term rally, the PMO had turned up nicely, now it has turned back down. The RSI turned down before reaching positive territory above 50. We are still seeing discounts on PHYS and that is bullish for Gold, however, given the bullish pattern on the Dollar, I'm not expecting Gold to breakout here.
Full Disclosure: I own GLD.
GOLD MINERS Golden and Silver Cross Indexes: Miners continue to struggle with resistance at the 20/50-EMAs and today's crash didn't help matters. Price is now approaching major support at the May top. The PMO has reached negative territory and the Silver Cross Index turned down below its signal line. Long-term indicators (GCI and %Stocks > 200-EMAs) are still positive, but the other indicators are deteriorating. The good news is this is a very strong area of support and now we have very oversold readings on %Stocks > 20/50-EMAs.
CRUDE OIL (USO)
IT Trend Model: SELL as of 9/8/2020
LT Trend Model: SELL as of 2/3/2020
USO Daily Chart: Huge uptick in Oil yesterday and again today. It doesn't change the price chart much, but it does appear we will see a move back to the top of the trading range. In yesterday's DecisionPoint Show we discussed some of the areas we are "stalking" in Energy. I do want to point out on the 6-month chart below that the 200-EMA is finally becoming visible in the upper left-hand corner. Talk about 'beat down'!
BONDS (TLT)
IT Trend Model: Neutral as of 8/27/2020
LT Trend Model: BUY as of 1/2/2019
TLT Daily Chart: Bonds rebounded today but still closed below resistance. The RSI is negative and the PMO turned down below the zero line so I'm not looking for a bounce just yet; but if there were a time for Bonds to bounce, this is it given we have now lost support and the 200-EMA is right there ready to provide it.
Full disclosure: I own TLT.
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Technical Analysis is a windsock, not a crystal ball.
Happy Charting! - Erin
Email: erin@decisionpoint.com
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 (Can Be Found on DecisionPoint.com Links Page):
DecisionPoint Shared ChartList and DecisionPoint Chart Gallery
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
