Last week I thought we had a good setup for a short-term market top and correction, but news of possible progress toward a resolution of trade issues with the EU spurred the market (SPY) higher to challenge all-time highs. Funny thing, though, there was no follow through on Thursday, and the market dropped on Friday after positive news of +4.1% GDP growth. Not to mention FANG darling Facebook crashing around -20% after earnings announcement Thursday, and Twitter losing -20% on Friday. What is going on?
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.
SECTORS
Each S&P 500 Index component stock is assigned to one, and only one, of 10 major sectors. This is a snapshot of the Intermediate-Term and Long-Term Trend Model signal status for those sectors.
STOCKS
IT Trend Model: BUY as of 5/11/2018
LT Trend Model: BUY as of 4/1/2016
SPY Daily Chart: The daily PMO finally topped (a week later than I expected). I have left the rising wedge in place, even though price broke out of the top of it this week. If price continues down, I think the rising wedge dynamics will still be a factor.
SPY Weekly Chart: SPY approached the top of the rising trend channel, and the weekly PMO has crossed up through the signal line. The only issue is that SPY closed in the lower half of the weekly range.
Short-Term Market Indicators: Last week these charts spoke strongly to me, pointing toward a short-term top and pullback. Didn't happen. This week they don't have much to say.
Intermediate-Term Market Indicators: Last week the ITBM and ITVM had topped, but the PMO was still rising. This week the ITBM and ITVM have topped again, and they have been joined by the PMO (finally!). All three indicators have negative divergences. So this week this chart sends the strongest message, calling for a price top and correction.
Conclusion: In the best of times the market can treat good news and bad news the same -- it rallies -- but now the market seems to be getting kind of cranky. Suddenly good news doesn't get as much positive reaction as we might expect, or the market appears to ignore it altogether. Earnings reports that fall short in some way can cause a stock to take a real beating, Facebook and Twitter being the obvious current poster children. These kinds of things can be early signs of bigger problems ahead. Also, there is the hype about which stock will be the first to reach a $1 trillion dollar market cap -- Amazon or Apple. When/if it happens, dive under your desk. Certainly as technicians we don't normally use news for specific trading decisions, but it shouldn't be ignored when assessing the broader market picture.
As I said, the chart immediately above makes me think that the market will correct next week. How much? Let's just say that I expect that the market will finish lower.
DOLLAR (UUP)
IT Trend Model: BUY as of 4/24/2018
LT Trend Model: BUY as of 5/25/2018
UUP Daily Chart: UUP has been slowly drifting higher for about two months. The PMO negative divergence makes me think that a correction is coming.
UUP Weekly Chart: The chart is positive except for the price deceleration, which I expect will lead to some trouble.
GOLD
IT Trend Model: NEUTRAL as of 5/2/2018
LT Trend Model: SELL as of 6/22/2018
GOLD Daily Chart: Last week gold broke below the support at 1240, and this week it had a small snapback rally up toward the point of breakdown. Not surprisingly, sentiment has become more negative.
GOLD Weekly Chart: This chart is negative: The rising trend line has been violated, the weekly PMO is below the signal line and falling, and the EMAs are bearish.
CRUDE OIL (USO)
IT Trend Model: BUY as of 6/26/2018
LT Trend Model: BUY as of 11/2/2017
USO Daily Chart: USO has been rallying for two weeks, but Friday's decline caused the daily PMO to top below the signal line. This is bearish.
USO Weekly Chart: The rising trend is intact, but there is a negative divergence on the weekly PMO. Also, the weekly PMO has crossed below the signal line.
BONDS (TLT)
IT Trend Model: BUY as of 6/1/2018
LT Trend Model: BUY as of 7/13/2018
TLT Daily Chart: Last Friday TLT broke down from a short consolidation. It continued down on Monday, then consolidated for the rest of the week. The result is a reverse flag formation, which is considered to be bearish. Note that the 50EMA is about to cross back down through the 200EMA. This will probably happen next week, unless there is a bounce. The reverse flag suggests that the opposite will happen.
TLT Weekly Chart: The head and shoulders formation still exists, and the weekly PMO has topped. A bearish resolution seems likely.
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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)
