Professor’s Comments March 10, 2020

Posted by OMS  at March 10th, 2020

The markets saw their largest one day decline in history yesterday.  The Dow finished with a loss of 2,014 points, closing at 23,851.  The NASDAQ and SPX were down 625 and 226 points respectively. Volume on the NYSE was heavy, coming in at 135 percent of its 10-day average.  There were 15 new highs and 1,620 new lows.

By falling below the 28 February low of 24,681, the Bear Market is now confirmed.  The best bet now will be to fade any and all rallies down to my target for Wave 3 down which remains between the 21,700 and 22,200 level.

Yesterday’s decline was likely Wave 1 of Major Wave 3 down.  Near the end of yesterday’s trading there was a small rally which could have been mini-wave 4 followed by a decline that re-tested the lows of the day.  If this is the case, Wave 1 of Major Wave 3 down could be complete with Wave 2 up due next.  Wave 2 of MW3 up should retrace a good portion, if not all, of yesterday’s decline. The obvious target is last Friday’s low of 25,226, which stands out as a ‘gap’ after yesterday’s down opening.  If prices move up to fill the gap, I’ll begin to look for entry points to short the indexes from levels between 25,200 to 25,500 which are my targets for Wave 2 up.

BTW, Wave 2 up will NOT be a straight up rally. It should take the form of a classic a-b-c move, so watch for it. The shape of the rally will confirm that it’s Wave 2 of MW3 down.

The market timing indicators remain Negative.  The DMIs on the Dow and NASDAQ-100 (QQQ) are also Negative as are the Dean’s List and The Tide.

The Sector Ratio fell to 1-23 Negative after yesterday’s session.  This is a strong indication that the entire market is moving lower.  The only Strong Sector was Computers, and it was not that strong with an RS rating of zero.  The Weak Sector List was led by Energy, Banks, Autos, Service, and Leisure.  To give you an idea about how weak the Lists was as of last nights close, the top 16 weakest sectors had RS ratings of -8 or lower.  This is telling me the market is EXTREMELY weak. But nevertheless, even weak markets should bounce once their wave patterns complete, like Wave 1 of Major Wave 3 down appeared to do yesterday. 

BTW, one thing students should watch during the next few days is how the Strong List reacts during the Wave 2 bounce.  If the Ratio stays negative, odds are that the bounce is only a Wave 2 rally.  If it begins to turn positive (highly unlikely) then I’ll have to reassess.

Model Portfolio:  The Model continues to hold ‘trial’ positions of 1,000 shares each of DUST and UCO.  It is also holding a lot of cash.  The cash will be put to work once Wave 2 of Major Wave 3 up completes.  Right now, with volatility at EXTREME levels, there is way too much risk in this market to be holding any positions of size.

BTW, I received several emails yesterday asking what the Model was doing with its shares of Crude Oil which too a big hit.   Here’s what I basically said in my response:

I view the drop crude prices as temporary.  From a technical perspective, crude oil is just at the low end of a very large triangle.  Once the political situation begins to normalize, and it will, prices will begin to move higher.

Crude Oil is a fungible asset, which means that even though Saudi Oil is slightly different than WTIC, or North Sea Brent, it’s all very similar.  The price of one impacts the other.  So, if Saudi Crude is selling for a lower price, oil from the Dakotas will also be low.  This will make it uneconomical for some U.S. frackers causing them to either temporarily halt production or go out of business. Once this begins to happen, there will be less oil available on the world market and cause the price to go up.

I also believe that Crude Oil near $31.00 a barrel is NOT in the best interest of the Russians or the Saudis. A few years ago, the Russian budget was based on crude prices slightly over $90 a barrel. So, with crude near 30, I wouldn’t expect the Russians to be starting any new troublesome adventures anytime soon. They’re broke! At some point, this temporary disagreement between two of the world’s largest producers will end, probably sooner than later.  And once it does, the price of crude will begin to move significantly higher.  FYI, my next target for crude during its next leg up within the triangle is above 66 which is its recent January 2020 high, with 70+ a real possibility.  With a target like this, I’m OK with owning/ holding crude near 31. I’m watching the short-term bars to add to the ‘trial’ position.

That’s what I’m doing.

h

Market Signals for

03-10-2020

The Model Portfolio is being shown for educational purposed only.  The Buy/Sell actions in the Model Portfolio are made based on technical indicators that can and do change frequently and should NOT be considered as recommendations for trading an actual portfolio.  Any gain or loss in the Model Portfolio should not be used to predict future performance of the Model.

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.