Weekend Strategy Review August 2, 2020

The Dow gaped higher at Friday’s open with negative breadth, then pulled back spending most of the day well below the 26,000 support level.  But a late rally caused the Dow to move from being down about 250 points to close 114 points higher at 26,428. The large cap index was down 42 points for the week.  The NASDAQ was up 157 points on Friday and up 382 points for the week.

The interesting thing about Friday’s session was the breadth.  While the Dow was 0.44 percent higher, 527 more issues declined than advanced.  Same for the volume on the NYSE where 65 percent of the volume was on the downside with only 35 percent on the upside.  It’s usually a negative sign going forward when the Dow closes higher on negative breadth and volume.

From a technical perspective, Friday’s intraday decline below the 26,300 level increased the odds that the decline from the 15 July high of 27,071 is NOT a Wave 4 up, but likely part of Wave 2 up of Major Wave 3 down. This is a big deal because if its Wave 2 and NOT a Wave 4, it would eliminate my alternate scenario that would have prices re-test the 27,000+ level on Wave 5 up. So while I can’t completely eliminate the alternate scenario yet, my primary scenario suggests prices should begin to fall hard after a possible small early rally on Monday, maybe to 26,530 level.

The reason I now believe Friday’s late rally was part of a Wave 2 is because it formed an a-b-c flat pattern off the 30 July low of 25,992. The pattern is clearly visible on the 15 minute chart of the Dow. If I’m correct about this, Wave 3 of Major Wave 3 down should be next.

Once Wave 3 down starts, it should pull the Dow below the 15 June low of 24,843.  My current target for Wave 3 down remains slightly below the 23,000 level.  Once all five waves of Major Wave C down are complete, the Dow should be trading below its 23 March low of 18,213 with 17,000 or lower possible.

If the Dow falls below the 26,000 level early next week, I will go to Full Red Alert as the odds that Wave 3 of Major Wave 3 down is underway will increase significantly.

The Market Timing Indicators for the Major Indexes remain mixed.  The Dow remains Neutral while the NASDAQ stayed Positive.

The DMI on the Dow has turned negative. Both of my short-term momentum indicators continued to fall yesterday even though the Dow finished higher.  My velocity indicator continues to fall and is now below the zero line which is a Sell Signal.  My custom VTI indicator also fell yesterday and now has a reading of 60.9.  A reading below the 50 level will generate a Sell Signal. 

The Dean’s List remains Positive.  The Tide is Neutral. The A-D oscillator is now negative which means that more stocks on the NYSE are falling than rising.

The Sector Ratio weakened slightly to 22-2 Positive after yesterday’s session.  Continue to watch this indicator closely in the days ahead.  Again, IF it continues to weaken, pay attention. 

The top five strong sectors were Insurance, Consumer Products, Semiconductors, Cap Goods and Autos.  The two weak sectors were Leisure and Real Estate.  

There were NO CHANGES to the Model on Monday.  The Model continues to hold trial positions of 1,200 shares of TWM, 1,600 shares of DXD, 400 shares of DUST, and a lot of cash.  It continues to look for opportunities to buy shares of inverse index ETFs.

Gold rose and the miners rose yesterday. Gold, the metal, appears close to completing its wave 5 rally.  The miners also appear close to completing their wave 1 rally.  Once wave 1 up in the miners completes, wave 2 down should take prices significantly lower.

The Dollar fell rose yesterday even though gold rallied. The decline in the Dollar since its March high appears to be a large Wave 2 down retracement. If the Dollar begins to rally, it should be a significant Wave 3 up. This should cause a decline in gold prices.

Bonds appear to be in the process of completing the final waves of their Wave 2 up topping pattern.  Wave 3 down should be next.  TMF, the Bond ETF, fell 0.20 cents yesterday to 46.  I’m still using the 21 July low of 43.5 as the level that would signal the start of Wave 3 down. If this level is broken, I will look to add a few shares of TBT to the Model Portfolio.

Have a great weekend.

That’s what I’m doing,

h

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.

Market Signals for

08-03-2020