Professor’s Comments August 19, 2021

Posted by OMS  at August 19th, 2021

The Dow completed a five wave rally on Monday,16 August at the 35,631 level. Since then, the Dow gapped lower on Tuesday for wave 1 down, then rallied yesterday for all or part of wave 2 up. It is now poised to start wave 3 down. The first stop for Wave 3 down on the Dow should be close to the 34,450 to 34,550 level. Wave 3 down could go significantly lower if it extends. Any rally back above the 35,354 level at this point would temporarily negate this bearish view. Yesterday, the Dow closed at 34,960, down 383 points. Once the Dow broke through the 34,235, the level I mentioned in Tuesday’s Comments, the route was on. BTW, I came up with the 34,450 to 34,550 level early last night just before the indexes started to plunge. When I checked the Dow futures this morning, they were down almost 400 points at 34,469.

For the past week, I have been warning about how the breadth and momentum were diverging as the major indexes pushed toward new highs. Divergence is one of the key indicators in The Professor’s Methodology. I use divergence between price and momentum every day when I look for Scalp Trades and Position Trades. It’s the divergence that first gets my attention. After that, it’s simply a matter of puling the trigger when the indicators turn positive or negative.

Many new students tend to forget about divergence and only focus on the indicators. But without divergence, most moves tend to be limited. With divergence, well that’s where the money is. The best bars for identifying divergence are the the 10 and 30 min bars. See if you can spot the negative divergence on RCL’s 30 min chart as it made its high on 11 August. Then on 12 August, when the indicators turned negative, it was time to short the stock.

As of yesterday’s close, the Market Timing Indicators for the Dow, S&P, and NASDAQ are Negative.

The Scalp Trading Indicators for the Dow (DIA), S&P (SPY), and NASDAQ (QQQ) have turned Negative.

The Dean’s List has turned Negative. The Tide has turned Negative. Be careful!

The Sector Ratio weakened to 7-17 Negative after yesterday’s session. The top five strong sectors were FoodDrug (2), PharmaBio, (2), Cap Goods (1), Insurance (1) and Computers (0). The top five weak sectors were Energy (-7), Autos (-3), Leisure (-3), Retail (-2) and Real Estate (-2)

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

Top Stocks: Once again, I scalp traded two stocks yesterday. Seeing clear positive divergence on the 30 min bars, it didn’t talk me long to exit my short position and buy a few shares long to take advantage of the ensuing rally. The long trade was good for just over two points. Later in the day, when the 30’s tuned negative, I sold my long position and re-established the short.

I had a flat day with RIOT, exiting the position when the 30s turned negative. I didn’t want to hold anything long, even the crypto miners, with what I was seeing from the breadth indicators. As I mentioned, three days of negative breadth when the markets are making new highs is never a good sign of a healthy market.

BTW, as I mentioned in the WSR, I still believe that RCL will trade down to the 70 level in the weeks ahead.  After yesterday’s rally in RCL, it appears wave 1 up and 2 down are now complete. Wave 3 down should be next. By the time all five waves of the pattern are complete, RCL could be trading in the low to mid 60s.

With the ‘trigger’ on the Dow now negative, I will start looking for shorts on any bounce back. The 5 weakest stocks in the data base are: NBR (-9), BIDU ((-7), EQT (-6), LVS (-6) and IIVI (-6).

Gold and Bonds:  The ST indicators on GLD and TMF remain neutral, so I’m still on the side lines with both issues. This week could be a significant week for equities, gold, and Bonds. Be patient and wait for a change in the Timing Signals.

Students should note the positive divergence on the momentum indicators on GLD and GDX on the Daily charts. If the indicators turn positive, I’m a buyer. Still too early.

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

08-19-2021

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.