We've been watching and waiting for our IT indicators to turn down in overbought territory, and today they did. Add to this a topping Price Momentum Oscillator (PMO), a downside initiation climax, topping Swenlin Trading Oscillators (STOs), and numerous negative divergences, and you have a recipe for a short- to intermediate-term decline. These indicators typically top at major market price tops, so you've been warned.
Today, we discussed with subscribers that the concerns we had earlier are now materializing into what we believe will be a very difficult decline. Here are some excerpts from today's DecisionPoint Alert publication. If you'd like to try out a subscription and receive consistent analysis of market conditions as well as discussions on Bitcoin, Yields, Bonds, Crude Oil, the Dollar, Gold and Gold Miners, use Coupon Code: DPTRIAL2 at checkout on DecisionPoint.com and get two weeks FREE.
Climax* Analysis: There were two climax readings among the four eligible indicators, and SPX Total Volume was almost equal to the one-year daily average, so we are declaring today to be a downside initiation climax.
*A climax is a one-day event when market action generates very high readings in, primarily, breadth and volume indicators. We also include the VIX, watching for it to penetrate outside the Bollinger Band envelope. The vertical dotted lines mark climax days -- red for downside climaxes, green for upside. Climaxes are, at their core, exhaustion events; however, at price pivots, they may be initiating a change of trend.
Short-Term Market Indicators: The short-term market trend is UP and the condition is NEUTRAL.
After rising yesterday, the STOs decidedly turned down. Participation thinned, and Rising Momentum took a hit too. All of these short-term indicators have given us negative divergences, suggesting more downside ahead.
Intermediate-Term Market Indicators: The intermediate-term market trend is UP and the condition is OVERBOUGHT.
This was a big day for the ITBM and ITVM, which both turned down today. Nearly every time this indicator tops, a market decline follows. Not surprisingly, we lost some PMO BUY signals among components of the SPX. This is ominous, coming alongside a PMO top and a downside initiation climax.
Conclusion: You should be playing defense if you haven't been. If it were just one or two problems on our indicator charts, we wouldn't be so concerned, but there are multiple problems on all of our indicator charts (including some that only subscribers have access to). Aggressive investors can consider shorts, while conservative investors should tighten stops or consider profit taking. If the Price Momentum Oscillator (PMO) is moving lower on your stock or ETF, consider shedding it.
Good Luck & Good Trading,
Erin Swenlin
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