Tide Turning Positive for the Markets

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The following is an excerpt from the December 6, 2012 blog for Decision Point subscribers.

Today's market action forms an ultra-short-term ascending triangle which bullish.

spx 6 dec 2012

In all cases it was the Thrust Component with a PBI crossover its 10-EMA that triggered the signal changes to a BUY. But there are three charts that have a subtle difference to the others.

On the NDX 100, Technology ETF (XLK) and Technology equal-weight ETF (RYT), the BUY signals were generated by the PBI crossover, however, the Trend component of the Thrust/Trend Model still has all of these on Neutral as the 20-EMA has not crossed above the 50-EMA. This means that these signals are more fragile because if the Thrust component loses its BUY signal with a PMO or PBI negative crossover, then the Thrust/Trend Model loses its BUY signal and reverts to what the Trend component signal currently is.

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On the other charts, the 20-EMA is already above the 50-EMA. This means that the Thrust component's BUY signal is 'confirmed' by the Trend and therefore, the future of the signal rests on the Trend component from here on out. If the Thrust component loses its BUY, it won't matter if the Trend component still is on a BUY.

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STOCKS: Based upon a 11/08/2012 Thrust/Trend Model NEUTRAL signal, our current intermediate-term market posture for the S&P 500 is neutral. The Trend Model, which informs our long-term outlook, is on a NEUTRAL signal as of 11/23/2012, so our long-term posture is neutral.

Stock prices are now wedged in between the rising bottoms trend line and the horizontal support at around 1400. It's positive that price remains above support but negative that volume decreased significantly on an up day.

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If we look at the SPX Thrust/Trend Model chart like the ones under our signal table, we see that we are nearing a Thrust/Trend Model BUY signal as the PBI is nearing a positive crossover its EMA. We would need the 20-EMA to cross above the 50-EMA to have the Trend component confirm the Thrust component BUY signal. That will of course require more positive price action above the 20/50-EMAs.

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Short-term indicators have finally cleared overbought territory. They are now prepared to rise with a rally.

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Conclusion: Ultra-short-term we see a bullish ascending triangle. Support at the 1400 level is holding steady. Short-term indicators are no longer overbought and will better absorb a rally. The tide is turning positive with the signal table beginning to flip to BUY signals. A caution would be that the SPX has not yet moved to a Thrust/Trend Model BUY and even if it does, there isn't a positive 20/50-EMA crossover to make it solid. An example of this is the NDX which had a Thrust/Trend Model BUY signal generate today but the Trend isn't behind it yet.

DOLLAR: As of 11/28/2012 the US Dollar Index ETF (UUP) is on a Trend Model SELL signal.

The dollar surged higher recovering from a November slide. The momentum shift is visible in the behavior of the PMO which turned up today.

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GOLD: As of 12/6/2012 Gold is on a Trend Model NEUTRAL signal.

With the dollar doing so well today I expected to see gold which has been weak, tumble lower; but instead, it managed to move higher, albeit only a small amount. With price being well under the 20/50-EMAs even a small gain did not avoid the new Trend Model Neutral signal. We define "Neutral" as moving your position to cash, although aggressive, less risk-averse traders may use a Neutral signal as a SELL signal to go short.

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CRUDE OIL (USO): As of 10/02/2012 United States Oil Fund (USO) is on a Trend Model SELL signal.

USO has been on a very slow and steady rise. Today price touched down on support.

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Looking at the 10-minute bar chart, we see that price actually bounced off of that support line mid-day.

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BONDS (TLT): As of 11/9/2012 The 20+ Year T-Bonds ETF (TLT) is on a Trend Model BUY signal.

TLT extended the breakout from the declining tops line of previous resistance. The PMO which had turned up yesterday, crossed over its 10-EMA triggering a PMO BUY signal.

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About Erin Heim