(This is an excerpt from August 17, 2011 issue of the blog for Decision Point subscribers.)
Wednesday finally marked the official move from a bull market to a bear market as the 50-EMA crossed below the 200-EMA. Unofficially we have been applying bear market rules for the past few weeks when the steep decline began and our intermediate-term NEUTRAL signal was generated.
STOCKS
Based upon a 8/2/2011 Thrust/Trend Model NEUTRAL signal, our current intermediate-term market posture for the S&P 500 is neutral. The long-term component of the Trend Model is on a SELL signal as of 8/17/2011.
Wednesday the market opened higher, but quickly lost steam and fell. It traded just below yesterday's close but managed to eke out a positive close by day's end.
The rally seems to have stalled. We see a price curve that could begin to arc downward on the bar chart. Of course, the most significant feature on this chart is the 50-EMA cross below the 200-EMA. The PMO continues to rise, but it has slowed down right along with price movement.
This rally is not only slowing, it has lacked confidence from investors since the beginning. This can be seen not only in the declining volume, but also looking at the Rydex Net Cashflow Chart. This chart follows the money, either in or out of bull or bear funds. Note that during this rally, money has not been flowing into the bull funds, cashflow has remained relatively flat. However, cashflow has been rising in bear funds. One would expect to see bullishness reflected by an increase of cash into the bull funds, not an increase in cash to bear funds.
Bottom Line: The Trend Model has generated a long-term SELL signal on the SPX, confirming our position that a bear market had already begun. Although SPX has rallied, it lacks the confidence and enthusiasm of investors who are moving cash into bear funds rather than bull funds.
DOLLAR
As of 1/19/2011 the US Dollar Index ETF (UUP) is on a Trend Model SELL signal.
A descending triange pattern has formed on the Dollar chart. This is a bearish formation which conforms with the already falling EMAs and the recent negative crossover of the PMO.
CRUDE OIL (USO)
As of 5/16/2011 United States Oil Fund (USO) is on a Trend Model NEUTRAL signal.
USO appears to be closing in on resistance along a horizontal support line drawn along the lows of February and June.
Looking at the 10-minute bar chart for USO leaves me to believe that this resistance should hold. Resistance was hit early in the day and then tapered off, rather than resistance being hit after a surge higher.
BONDS
As of 4/26/2011 Bonds are on a Trend Model BUY signal.
The thumbnail of the bonds chart continues to intrigue. The pennant formation remains intact as price reached and closed at the top. We continue to patiently wait for a breakout.
Technical analysis is a windsock, not a crystal ball.
