DecisionPoint

DP Alert: Small-Caps Bifurcate Market - Possible Buying Initiation Lining Up

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Amazing! A week without any DP Scoreboard updates. All of these indexes came very close to new PMO SELL signals yesterday with the big decline, but today's rally pop changed that quickly with all four PMOs turning back up and away from their signal lines. While not a news flash, small-caps are clearly outperforming the large-cap indexes. This likely has to do with the rising Dollar and its effects on overseas business for large-cap multinational companies. The Russell 2000 logged new all-time highs while the Scoreboard indexes have mostly struggled and are far off all-time highs. I look to small-cap leadership to give the larger indexes a push in the right direction.



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: I was very concerned when I saw yesterday's breakdown and drop below the 50-EMA but what a difference a day makes. Today saw trading back above the 20- and 50-EMAs. Note that the PMO which was headed for a SELL signal, turned up on today's rally. The SCTR is healthy and while the OBV may not look that good, we did see a higher low than the one from early May.

Climactic Market Indicators: This is where I see a buying initiation lining up. Yesterday the VIX dropped below the bottom Bollinger Band on climactic negative readings. Today it still managed to touch below the band. This is important because we have climactic positive readings today. Since we've been in a lull and decline, I see those climactic numbers and the penetration of the bottom Bollinger Band as a buying initiation, not an exhaustion. I'm looking for higher prices through the end of the week.

Short-Term Market Indicators: These indicators remain in neutral, twitching back and forth. Today they did turn up, but I won't get excited until they both are at least above the zero line and a clear up trend is in play again. Look at these as neutral but improving somewhat.

Intermediate-Term Market Indicators: I said in last week's DP Alert that I wasn't going to worry about the decline in these indicators until they had negative crossovers. Well, the ITBM did and the ITVM narrowly avoided it. The good news is that both have turned up and the rising trend hasn't been deserted yet.

Conclusion: Small-caps should give large-cap indexes a hand up given their relative strength right now. The DP Sector Scoreboard shows more BUY signals arriving, leaving only Utilities, Consumer Staples and surprisingly (although not too surprisingly given the dive in yields) Financial sectors with Neutral signals. In a bear market we would expect to see Utilities and Staples lead. That is not the case, which suggests the rally should kick start soon.


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 has been on a raging rally since mid-April. It was "due" and boy did it take off. Today we got a sizable pullback toward support at the October/November highs. The PMO tipped downward today on the decline and it is getting very overbought. I'd look for consolidation along this area of support. The PMO needs to unwind and that would do the trick. Given the voracity of this rally, I'm not looking for it to decline much...at worst I'd look to the area of support at $24.50.


 

GOLD

IT Trend Model: Neutral as of 5/2/2018

LT Trend Model: BUY as of 4/12/2017

GOLD Daily Chart: Gold rallied today but is still being stymied at 1310 resistance. Note that there is a premium now on Sprott Physical Gold Trust. This suggests excessive bullishness which tells me that Gold will likely continue to be stuck at resistance or see a move lower. The good news for Gold is that it is uncoupling from the Dollar as the reverse correlation is weakening. If the Dollar does consolidate, it would offer some opportunity for Gold, but that premium tells us that sentiment is very bullish on Gold. Sentiment being contrarian, that is bearish for Gold.


CRUDE OIL (USO)

IT Trend Model: BUY as of 9/6/2017

LT Trend Model: BUY as of 11/2/2017

USO Daily Chart: A much needed correction occurred on Oil and that was followed today by a healthy bounce off the rising bottoms trendline. The PMO is now getting some needed relief and opens up opportunity for another move higher that wouldn't move it into overbought extremes. With the summer months approaching, I would expect higher prices.


BONDS (TLT)

IT Trend Model: SELL as of 4/20/2018

LT Trend Model: SELL as of 2/8/2018

TLT Daily Chart: Treasury yields skyrocketed earlier this month but took it hard on the chin the last few weeks. This is what is fueling the rally in Bonds right now. TLT has now dropped back below overhead resistance. While I think you could make a case for a double-bottom off the February and May lows, the 50-EMA is well below the 200-EMA which puts TLT in a bear market configuration. Bullish patterns don't usually execute properly when the 50-EMA is that far below the 200-EMA. The PMO is encouraging, but today saw the failure of the test above resistance at $122. If we see a decisive (3%+) break above that resistance level, then we can start talking about it's execution. Today's immediate failure of yesterday's breakout suggests it was a false breakout.



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 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:


Erin's PMO Scan

DecisionPoint Shared ChartList and DecisionPoint Chart Gallery

Trend Models

Price Momentum Oscillator (PMO)

On Balance Volume

Swenlin Trading Oscillators (STO-B and STO-V)

ITBM and ITVM

SCTR Ranking


 

Erin Swenlin
About the author: helped create and manage the DecisionPoint.com website alongside her father, Carl Swenlin. Together, Erin and Carl launched the DecisionPoint daily blog in 2009. She hosts the MarketWatchers LIVE web show at StockCharts.com, and is also a Member of the CMT Association. Learn More
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