Professor’s Comments 5/14/20

Posted by OMS  at May 15th, 2020

he Dow fell hard again yesterday, dropping another 517 points to 23,247.  The decline occurred a day after the Market Timing Indicator for the Dow moved to a Sell Signal. The same timing indicator on the NASDAQ remains Neutral. So, with mixed signals between the Dow and NASDAQ, it’s still not clear if Major Wave C down has started. There’s still a possibility that yesterday’s decline was part of sub-wave c down of wave 2 down within the final 5 wave sequence of Major Wave B up.  In yesterday’s Comments I mentioned that the Dow could fall to the 23,400 level before wave 2 down completes and wave 3 up begins. So, by stopping at 23,247, there is still a possibility, maybe 25 percent chance, of a wave 3 rally.  Volume on the NYSE was heavy, coming in at 122 percent of its 10-day moving average.  There were 16 new highs and 72 new lows.  The new lows were the highest since 3 April.

Even though yesterday’s decline broke through H&S neckline support at the 23,400 level, which should lead to further declines, I’m still cautious about the decline continuing today.  That’s because yesterday was another 90 percent down volume day. Whenever this unusual volume event occurs on two consecutive days, the EXTREME oversold condition usually leads to a brief one day relief rally.  The rally is usually a good one, as the average gain can be anywhere between 2-3 percent.  But here’s the deal….whenever the market does not stage a brief one day rally after two consecutive 90 percent down days, the following day (which is Friday) can be a disaster.  In other words, by not rallying, it’s a sign the market is so weak that it can go into a free fall on Friday.  So the markets MUST rally today to keep hope alive for the Bullish scenario.  Pay attention to what happens today!

The Dean’s List and The Tide remain Neutral.

The Sector Ratio weakened to 3-21 Negative after Wednesday’s session.  The 3 strongest sectors were Material (includes gold) Household Products, and PharmaBio.   The Cap Goods and technology sectors, Computers and Semiconductors, have fallen off the Strong List.  Remember what I said about what will likely happen if these sectors drop off the List…”that it would be a good indication that the time to exit the long side of the market has arrived.”  The top 5 Weakest Sectors were Banks, Real Estate, Leisure, Financials, and Transportation.  If the market begins a serious decline, these are the sectors that will lead the way down.  If you own stocks in these weak sectors, they will likely get hammered during the coming decline.

BTW, yesterday I showed my AIQ students that purchased my new Scalp Trading Class video how I used the Sector List to identify the stocks I traded during yesterday’s session.  Going into the session, I saw that Materials (gold) was the strongest sector and Banks the weakest.  So, I focused on GOLD and Wells Fargo (WFC).  I made three trades during the session for a profit of just under $1,000.  I just looked for the set-up described in the video and then pulled the trigger when the three new indicators gave say so.  If you’re not doing this, and continue to feel frustrated by FOMO, (fear of missing out), get the video.  Remember, the decline we saw yesterday has a loooong way to go. It could last for years and have many down-up-down moves.  Learn how to trade these moves.  That’s why I developed the Class ….for you!  So you won’t miss out.  If you purchase the video, I’ll give you access to my follow on sessions where I’ll answer your questions about the new indicators and walk you through the process I’m currently using for all my trading (Scalps, PT, and EoD).

Gold (GLD) rose1.54 yesterday to 161.58.  It still has not broken out of the sideways triangle pattern it has been forming for the last 21 trading days.  If GLD moves above 162, a significant rally should begin as suggested by the narrowing Bollinger Bands.  Students should watch gold now as the Wave 4 triangle suggests it could be one of the best bets on the Board.  Again, with the Materials Sector at the top of the Strong Sector List and mining stocks and ETFs all over the Dean’s List, you should be paying attention to gold now.

The Model continues to hold 40 shares of UCO, 600 shares of TBT, and 500 shares of GOLD with a cash balance of $76,147. The Model is waiting for the current rally to complete before re-establishing positions in inverse index ETFs.

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.

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

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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.