Professor’s Comments April 2, 2020
Posted by OMS at April 2nd, 2020
The markets fell hard again yesterday two days after completing an inside day pattern that usually marks an intermediate term top. The Dow finished with a loss of 974 points, closing at 20,944. The NASDAQ and SPX were down 3460 and 114 points, respectively. Volume on the NYSE was light again, only 84 percent of its 10-day moving average. Low volume declines tend to be Bullish. There were 3 new highs and 116 new lows.
Yesterday’s low volume decline was likely part or all of Wave ‘B’ down within an A-B-C pattern for Major Wave B up. If yesterday’s decline was the start of Major Wave 3 down, the volume should have been a lot stronger than what we saw yesterday. This means that yesterday’s decline was likely Wave ‘B’ down with Wave ‘C’ up to come, perhaps starting as early as today. Wave ‘C’ up of Major Wave B up could rally the Dow back to the 23,500-24,000 level, but this does not have to happen. It could truncate anywhere between current levels and 23,500. Once Major Wave B up completes, another crash wave (Major Wave C down) will begin. This wave should drop the Dow back down to the 17,000-18,000 level, with 12,000 to 13,000 possible if Major Wave C down extends.
Yesterday’s low volume decline petty much eliminated the Wave 2 scenario from consideration. This means that once the Major Wave B rally completes, the next decline will likely occur in a stair-step fashion, with periods of significant decline followed by periods with significant rallies. This decline should begin within the next 1-3 weeks.
BTW, IF the current sequence is part of an A-B-C rally back to the 23,500 to 24,000 level, it has another major consequence that students should understand and put into their planning. As many of you know, I have been asked by several TV anchors about the extent of the Bear Market. Most people want to hear an answer that suggests there will be a V-shaped bounce once the war on the coronavirus is won. Hmmm? I have been saying that the Bear will last anywhere from 2-3 years. This was based on a five wave decline with the current rally being a Wave 2 up. But now that I’ve seen how the market has retraced, I’m leaning more toward the worst case A-B-C scenario. Under this scenario, the Bear market could last 5-6 years. In other words, IF the Dow manages to rally back to the 24,000 level, the next wave down after Major Wave C up completes should see the Dow fall to 17,000 or lower over the next 6-9 months, possibly as long as a year. But after that, instead of a V-shaped bounce back, the Dow will likely trade between 17,000 and 24,000 for another 2-3 years before FALLING again, this time to the 12,000 level or lower before all waves of the pattern are complete. So, if the Dow manages to rally back to the 24,000 level now, it should not be a time for celebration. Students should understand that the odds would shift heavily in favor of the 5-6 year Bearish scenario.
The market timing indicators are mixedafter yesterday’s session. The Dean’s List appears to be in a state of transition, with the Tide being neutral. This means the market could be setting up for the next rally leg. We’ll see.
The Sector Ratio weakened to 3-21 Negative after yesterday’s session. The Strong List was led by Material, Household Produces and Computers. If the market begins to rally, it will be important to watch which sectors lead the way higher. If Household Products and Computers continue to lead, this market isn’t going anywhere for a looooong time. It will continue to be a traders market. Same for the Weak List. If Leisure, Autos, Service, Energy, and Retail continue to top the Weak List, I would fade any rally.
The Model sold its ‘trial’ position of 800 shares of DXD yesterday for a nice profit. So now the Model is mostly in cash and continues to hold its shares of UCO. BTW, after listening to President Trump’s comments yesterday, I found what he said about the Saudi-Russian spat, which caused crude oil prices to tank, EXTREMELY interesting. You might have missed it, but when asked by a reporter about the conflict between the two-countries, he said that they should end their disagreement and make a deal. I’ve been saying this for weeks because low crude prices are NOT in either countries best interest. But here’s the thing…After the President talked about the conversation he had with the Saudi Prince, he suggested he might do something to help the agreement along. Hmmm? He didn’t say what he would do but let me suggest that he has a very large hammer.
President Trump is very concerned about our country’s oil companies and our energy infrastructure, which is in danger of collapse if crude prices remain low. Simply put, the U.S. needs higher oil prices to keep its energy companies going. Oil is the lifeblood of our nation. We don’t know what the President said to the Saudi Prince, but if it were me, I would tell him that we might be removing our Fleet from that part of the world. If the Navy left, it would leave the Saudi Kingdom vulnerable to attack. The Persian Gulf would be in chaos! Imagine what Iran would do to foreign oil tankers passing through the Strait of Hormuz if the U.S. Navy there to protect the Gulf? Oil prices would sky-rocket! I believe vacating the Gulf is a good idea anyway, as I continue to wonder why we continue to protect the Strait for oil headed mostly to China? The U.S doesn’t need Saudi oil anymore, so the whole idea of keeping the Navy over there doesn’t make sense! If this was 2000, yes I would protect the Gulf. But this is 2020 and its time to re-evaluate the situation.
Anyhow, students might want to watch for a solution to the Saudi-Russia problem during the next week or so. Keep your eyes on crude oil. If prices begin to rally, there’s a good chance a deal is near.
That’s what I’m doing,
h
BTW, in today’s Comments I forgot to mention how the Model is performing under these EXTREME market conditions.
Despite the disastrous loss in UCO, which occurred overnight in an environment where NO indicator, no matter how good, could have predicted the Saudi’s would flood the crude oil market. Despite the loss, the Model is still beating the SPX by a whopping margin!
After looking at yesterday’s numbers, the Model is only down 1.16 percent vs. a loss of 20.52 percent for the S&P500. I’ll take those performance numbers any day of the week and twice on Sunday, even after being clobbered by crude oil!.
If we can get any sort of rally in crude, the Model will once again be profitable. But I’m NOT looking to just be profitable, my goal is to beat the hell out of this market in 2020.
This is what I’m trying to do with my conservative trades in the Model. I don’t plan on getting aggressive until I see evidence that the current corrective wave is over.
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
04-02-2020
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 31 Mar 2020 |
NASDAQ | NEG | 24 Feb 2020 |
GOLD | NEU | 31 Mar 2020 |
U.S. DOLLAR | NEU | 26 Mar 2020 |
BONDS | POS | 01 Apr 2020 |
CRUDE OIL | NEG | 24 Feb 2020 |
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.
Category: Professor's Comments