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DP WEEKLY WRAP: All That Drama for a Net Change of Less Than One Percent for the Week
By: Carl Swenlin | August 16, 2019

On the last trading day of July the market (SPY) resolved a rising wedge pattern with the expected breakdown, and that began what has turned out to be a very turbulent August. (Note how the volume for almost every day has exceeded the one-year average.) After an initial decline of almost -7%, the market has been chopping around in a four percent range, with this week giving us a +2% up day followed immediately by a -3% down day. For all that volatility, the market lost a mere -0.95% this week. Currently, we can see a short-term double bottom, which, if price can exceed this week's high, would imply a minimum rally to just above the July all-time high. But we're not there just yet.



GLOBAL MARKETS



BROAD MARKET INDEXES



SECTORS

Each S&P 500 Index component stock is assigned to one, and only one, of 11 major sectors. This is a snapshot of the Intermediate-Term and Long-Term Trend Model signal status for those sectors.



INTEREST RATES

There are some inversions. The 1-Month T-Bill yield is higher than everything, including the 30-Year Bond.



STOCKS

IT Trend Model: NEUTRAL as of 8/15/2019

LT Trend Model: BUY as of 2/26/2019

SPY Daily Chart: On Thursday the SPY 20EMA crossed down through the 50EMA, resulting in the IT Trend Model changing from BUY to NEUTRAL. With price largely moving sideways, it could be that we are in for another whipsaw like we saw in June. The rising wedge has resolved downward for the second time, and the double bottom may mean that the market is done with the decline.



SPY Weekly Chart: The weekly PMO has crossed down through the signal line, which is bearish.



Climactic Market Indicators: In the last two weeks we have nine climax days in mixed directions. Unfortunately, that is too many climaxes in too short a time to make sense of. Friday was a climax day, based upon net advances-declines, and net A-D volume. (Total SPX volume is thinner than it should be for an options expiration day. It will be calculated a second time tonight, so that divergence could be erased.) Since the climax occurred off a double bottom of price, I'm calling it an initiation climax, which should be worth at least a couple days of upside next week.



Short-Term Market Indicators: I have been looking for the STO-B and STO-V to double bottom in a manner similar to the double bottoms in May. I'll be keeping that thought for a few more days, but it's looking like we may have gotten the second bottom on Friday.



Intermediate-Term Market Indicators: These indicators are oversold if we're still in a bull market, and I have no concrete evidence that says we're not in a bull market.



CONCLUSION: Oversold intermediate-term indicators, combined with what looks like a pretty solid short-term double bottom in price, make me think there is a good case for believing that the decline is over. Nevertheless, we should be alert for a continuation of the rapid direction changes we have experienced this month. If that panicky indecision is still present next week, I wouldn't be buying anything.

There was much ado about the inverted yield curve this week, but this is only relevant as an indicator of the fundamental condition of the economy. It is not a timing tool. Still, it is not a happy condition.

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