Professor’s Comments August 4, 2020

Posted by OMS  at August 6th, 2020

In my WSR, I talked about how the markets should make a small rally on Monday, then begin to fall hard as Wave 3 down of Major Wave 3 down begins to unfold.  Yesterday’s rally was a bit more than I expected, but nevertheless, it appears that it was part of the process to complete wave c up of Wave 2 up.  Specifically, the rally appeared to be waves 3 (the gap opening) and wave 4(the sideways action during the rest of the day) of Wave c up.  So last night’s rally in the overnight market could have completed the five wave sequence for Wave c up of Wave 2 up.  We’ll see.

Yesterday’s gap opening on Dow started at the 26,532 level.  This ‘gap’ should now be watched closely today because any break of this level will form an ‘Island Reversal” candlestick pattern, a pattern that usually marks significant tops. 

Yesterday’s rally was also accomplished on weak breadth and volume which are signs the upside momentum is weakening. The 236 point rally on the Dow was accomplished with only 1.71 advancing issues for every declining issue on the NYSE.  The low breadth kept the A/D oscillator negative.  A negative A/D oscillator means more stocks are moving down on the NYSE than moving up.  So, the real strength of yesterday’s rally is suspect.

The Dow finished with a gain of 236 points, closing at 26,664.  The NASDAQ and SPX were up 158 and 24 points, respectively.  Volume on the NYSE was moderate, coming in at 103 percent of its 10-day average.  There were 130 new highs and 18 new lows.  

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.

Here’s what I’m watching today:  For starters because last night’s action on the Dow could have completed Wave 2 up of Major Wave 3 down, I’m watching for any impulsive action on the downside.  This should begin with the DIA breaking below yesterday’s gap opening low of 26,532. This should be followed by a re-test of support at 26,300.  

If the Dow falls below the 26,300 level, I will go to Full Red Alert as the odds that Wave 3 of Major Wave 3 down is underway will increase significantly.

Students who took my Scalp Trading course should note the significant negative divergences that are developing on the major indexes.

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

The Dean’s List remains Positive.  The Tide remains Neutral. My short-term velocity indicator on the Dow remains negative.

The Sector Ratio stayed at 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 Semiconductors, Computer Products, Retail, Service, and Cap Goods.  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 slightly yesterday, but the miners pulled back.  Gold still appears to be completing its wave 5 rally.  The miners also appear to be completing their wave 1 rally.  Once this rally completes, wave 2 down should take prices significantly lower.

The Dollar finished unchanged after spending most of the day slightly higher.  The decline in the Dollar since its March high still 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 gold prices to decline.

Bonds continued their Wave 2 up topping process. Wave 3 down should be next.  TMF, the Bond ETF, fell 1.16 yesterday to 44.84. 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.

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

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