The following is an excerpt from the September 14, 2012 blog for Decision Point subscribers.
Today the market showed some follow-through on yesterday's giant move up, but price did back off of the day's high soon after the open.
Stocks: Based upon a 06/29/2012 Thrust/Trend Model buy signal, our current intermediate-term market posture for the S&P 500 is bullish. The long-term component of the Trend Model is on a buy signal as of 1/5/2012, so our long-term posture is bullish.
Today's daily bar looks like a continuation of yesterday's move higher. It's more bullish on this chart than it is because in the context of the 10-minute bar chart, once today's high was hit early, it then spent most of the day falling which is less bullish. Volume did expand which is a plus.
This week saw the breakout from important resistance on the weekly chart. This is encouraging as the next area of resistance doesn't arrive until 1600.
Ultra short-term, the CVI topped but it remains overbought. The STVO and the VTO are now overbought. I like the fact that the negative divergences on all three indicators has been broken. That has some intermediate-term positive implications.
The % PMO Crossover Signals indicator broke its negative divergence with today's jump. It hadn't quite gotten there after last week's leap.
We note that today there was a bearish "shooting star" candle on the Participation Index chart (the opposite of the bullish "hammer"). There is also the need to digest the climactic action on Thursday. This would put us on guard for a possible ultra-short-term pullback or consolidation.
We saw another climactic reading for New Highs. This could be an exhaustion climax and also warn of a pullback.
Conclusion: Seeing some follow-through after yesterday's news-driven rally on expanding volume is good. Negative divergences clearing on many indicators is also positive. In the ultra-short-term and short-term we are prepared for a pullback given there was a shooting star candle today and ultra-short-term indicators reached climactic levels yesterday. Short-term indicators are in overbought territory. Sustainability of this rally is still questionable given that the big one-day moves this week and last week have been on somewhat manufactured news out of the central banks, but I think a breakout on the weekly chart is very encouraging.
Repost of Today's Chart Spotlight by Carl Swenlin:
First a funny story. In Los Angeles the other day, some bank robbers trying to escape the police were driving along throwing money out of the windows in order to thwart their pursuers. In a Tweet someone had labeled the link to the YouTube video, "Bernanke Pursued by Police in L.A."
While stocks have responded favorably to the QE3 announcement, the U.S. dollar continues to tank. The chart snapshot below of the Dollar Index ETF (UUP) was taken midday Friday, so there is still time for a reversal before the close, but at the time of this writing we can see that a logical support line has been violated. We would not characterize that line as being significant. It should be noted that the dollar has been declining snce the July top, so QE3 only adds to the weight dragging the dollar down.
A possible ray of hope is that the PMO (price momentum oscillator) above is very oversold based upon the one-year range; however, when we zoom out on the longer-term daily chart below, we can see that the PMO is far from being oversold on an historical basis. (For future reference the typical PMO range for a market or sector index is about +2 to -2. This emphatically does not apply to stocks, which can have very wide ranging PMOs.)
The weekly chart offers more long-term clarity, showing how price has broken down from a bearish rising wedge pattern. There are possible support levels below, but the most obvious is the congested area in mid-2011 at about 21.00.
Where the dollar has not been fond of the QE3 idea, gold has experienced a new breakout and rally. Price is moving quickly toward important overhead resistance at the February high. The weekly PMO had a bullish positive crossover in mostly oversold territory and is moving up quickly.
USO has been looking weak the past few weeks, appearing as if it would turn back down. Instead, price managed to breakout from the declining tops resistance and is moving back up inside the ascending wedge rather than breaking down out of it. A breakdown out of the bearish ascending wedge on the daily chart is still the technical expectation, but it might not happen until price finishes its climb to reach resistance around 40 seen on the weekly chart.
The announcement of QE3 had a negative effect on bonds as well as the dollar. We see a breakdown has occurred on the weekly chart below the rising bottoms line drawn from the July 2011 low through the March 2012 low. Price will reach the longer-term support line drawn along the April 2011 low to the July 2011 low around 115, not that far away. The negative divergence between the weekly PMO and price is not reassuring.
Technical analysis is a windsock, not a crystal ball.