Professor’s Comments August 12, 2021

Posted by OMS  at August 12th, 2021

Stocks were mixed again yesterday, the second consecutive day where the Dow rallied and the NASDAQ fell. The Dow finished with a gain of 220 points, closing at 35,484. The NASADAQ lost 24 points; the S&P gained 11 points.  Volume on the NYSE was low, coming in at 89 percent of its 10-day moving average. There were 180 new highs and 34 new lows.  

Prices on the major indexes continue to trace out the final waves of their Ending Diagonal Patterns. From a timing perspective, it still appears the final top will occur somewhere in the late August – September. Ending Diagonals are termination patterns that tend to rise until they don’t. The final or through-over wave, is always hard to project where it will end, so the best way to trade it is by watching for a turn in the indicators. Right now, the indicators remain positive. A close below 34,725 on the Dow will suggest that the top is in. A close below 4425 on the S&P and 14,584 on the NASDAQ would suggest the top is in on those indexes.

The Market Timing Indicators for the Dow, S&P, and NASDAQ remain Positive.

The Scalp Trading Indicators for the Dow (DIA) and S&P (SPY) are also Positive. However, the volume indicator on the NASDAQ (QQQ) has turned negative, making the indicators Neutral for that index.

The Dean’s List and The Tide are Positive.

The Sector Ratio remained at 15-9 Positive after yesterday’s session. The top five strong sectors were PharmaBio (3), Cap Goods (3), Food Drugs (2), Financials (2) and Technology (2). The top five weak sectors were Energy (-3), Foods (-1), Autos (-1), Leisure (-1), and Transportation (-1).

Model Update:   There were NO Changes to the Model. It is still 100 percent in cash.

Top Stocks:  I received am email from a relatively new student earlier in the week that wanted to know if he could use the Scalp Trading Indicators to swing trade top stocks from the Member’s Watch List. In my recent Update Class, I mostly talked about how I use the indicators to scalp trade and for end of day trading. But after I thought about the email, I realized that sewing trading or Position Trading is something that more students should become familiar with, especially if they don’t have the time to watch a computer all day. 

I do a lot of Position Trading.  I simply select a top stock from the Member’s Watch List and then trade it on the mid-term bars, either the 30s or the 60s.  When you use the mid-term bars, a typical trade usually lasts between 1 and 6 days. The thing I look for to set-up the trade is a divergence in momentum. For example, most of us saw GBTC, the crypto ETF, move to the top of the Dean’s List last week, so we knew Bitcoin and the miners were hot. The two crypto stocks, RIOT and MARA were also either at or near the top of the Member’s Watch List. Let’s use MARA as an example. 

If you pull up a 30 min chart on MARA, you will see a clear positive divergence on the bias or CCI that ended on 3 August when MARA made its second low. This was the set-up. So now that we knew which stock to trade, all we needed was for the indicators to turn positive. That happened the next day, right at the open when MARA gapped higher. The opening price was 27.61.  The indicators stayed positive for four consecutive days, before the volume and momentum started to wane. An exit, based on momentum, would have gotten you out near 36.30.  If you used volume, the exit would have been about the same. The 4-day trade would have resulted in a profit of   8.60 points which is about $4,345 profit on 500 shares.  My point is that you don’t have to be looking at a computer all day to make money.  You could have done the same thing with RIOT.

Let’s look at gold which has been in a down trend.  Only this time I’ll use the 60s on GDX, a gold mining ETF.  In this case, the ST indicators turned negative on GDX right after the open on 5 August. The stock started a steady decline that lasted 4 days before the CCI showed the down trend had ended. An exit on 11 August, based on volume would have produced a 4-day profit of 2.36 points or $1,180 on 500 shares. 

OK, so now that I have your attention, let’s look at RCL, a potential short I’m watching.  If you look at a 30 min chart, you will see that price and momentum have been diverging for the past two days. Tuesday’s high was not accompanied by higher momentum yesterday. This is the divergence set-up I discussed earlier. You should also notice that during RCL’s recent 5-day rally, both ST indicators remained positive. However, after yesterday’s session, the volume weakened and turned slightly negative. So now that the volume has turned negative, I’ll be watching for a turn in momentum.  If this happens, I’ll short the stock.  BTW, when you’re looking at the chart, notice how RCL tends to make fairly large moves that usually last between 3 to 6 days.  The new bias indicator I discussed in the Update video is extremely useful in identifying these Position or Swing Trades. Just follow the indicators.

One of the reasons I continue to urge students to purchase my Scalp Trading Class is so they can trade volatile stocks like the crypto miners. It’s not only easy, but also fun!  If you see the miner has positive bias, you can get in and out of the stock every time the volume turns positive. You don’t have to worry about what the overall ‘market’ is doing.  When you are trading a crypto miner near to top of the MWL, you already know it’s a strong stock.  You enter the trade when the indicators give say so and then become completely focused on the trade. Nothing else matters. It’s just you and the indicators.

All I’m doing now is scalp trading or position trading as I wait for the indicators on the indexes to roll over.

BTW, several of the crypto miners will be announcing earnings later today after the market closes. So, if you’re trading the cryptos, you need to be mindful of the increased volatility that will likely occur after the announcement.  A quick look at the charts of both RIOT and MARA shows the stocks have traded sideways for the past three days. Flat to sideways trading is usually something that occurs prior to an earnings announcement as traders wait for the news. This sideways pattern is usually some type of wave 4. If this is the case, tomorrow could be a good day for the miners. One reason I say this is because Bitcoin, the underlying asset for the miners, appears to be starting a Wave 5 up. If it’s a Wave 5 up, a re-test the 12 April high of 63.346 could be in the cards. Even higher prices are possible.

Gold:  Gold (GLD) rose 2.23 points yesterday and could be starting its next wave up. The Market Timing Indicators on gold remain negative, so it’s still too early to tell.  At his point, I’m still on the side lines with my gold trades but getting cautiously optimistic.  Be patient and wait for a change in the Timing Signal.

Bonds:  Bonds continued to decline yesterday in what appears to be the start of Wave 5 down. At this point, Bonds are EXTREMELY oversold without being in a Trend. So, I’m going to wait to see if I can get a short-term bounce before shorting.  Because Bonds tend to make long stained moves, students might want to consider a position trade in TBT on any bounce in Bonds.

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

08-12-2021

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.