Professor’s Comments August 6, 2020
Posted by OMS at August 6th, 2020
The markets rallied hard yesterday, following the path for the Alternate Scenario in the chart I posted on 25 July. The Dow finished with a gain of 373 points, closing at 27,201. The NASDAQ and SPX were up 57 and 21 points, respectively. Volume on the NYSE was moderate, coming in at 103 percent of its 10-day average. There were 150 new highs and only 4 new lows.
Yesterday’s rally could have been the completion of Wave 2 up. When I posted the chart on 25 July, one of the things I kept saying is that I could not eliminate the Alternate Scenario unless the Dow closed below the 26,300 level. The lowest the Dow got since 25 July was 26,314, so the Alternate Scenario was always in play. The target I used for Wave 2 up in the Alternate Scenario was 27,273. This level is a perfect Fibonacci 1.618 times Wave 1 retracement. Yesterday’s rally got as high as 27,262. So, the Dow got within 11 points of its Fibonacci target yesterday.
Tomorrow, the BLS will announce the results of the July Jobs Report. Jobs reports are always events that can turn markets, so we need to pay attention to the 8:30 announcement. It could trigger the start of Wave 3 down.
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: With most traders waiting to see what the government has to say about jobs, I don’t expect that much will happen today. The level I will be watching now is 26,800 on the Dow. This level is near the mini wave 1 high that occurred on 4 August on the 15 min bars. If prices start to fall below this level, the odds are high that Wave 2 up is complete, and Wave 3 down is starting. A break of 26,800 should lead to an immediate re-test of the 26,300 level which if broken should take prices significantly lower prices.
If the Dow falls below the 26,300 level, I will go to Full Red Alert as the odds that Wave 3 down is underway will increase significantly.
The Market Timing Indicators for the Major Indexes remain mixed. The Dow remains Neutral while the NASDAQ stayed Positive.
The Dean’s List and The Tide are Positive. My custom VTI for the Dow rose yesterday and is now just slightly below entering the Trend Mode. However, the 2-period RSI is now EXTEMELY overbought at 96.61, so once again the Dow is overbought with NO Trend in place. It should begin to pull back.
The Sector Ratio stayed at 22-2 Positive after yesterday’s session. Continue to watch the Sector Ratio closely in the days ahead. Again, IF it begins to weaken, pay attention.
The top five strong sectors were Service, Material, Semiconductors, Consumer Products, and Healthcare. 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 $43,379 in cash. The Model continues to look for opportunities to buy shares of inverse index ETFs.
Gold rose yesterday, but the miners pulled back. Gold still appears to be close to 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 fell slightly yesterday and still appears to be nearing completion of 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 fell slightly yesterday and appear to be close to completing their Wave 2 up topping process. Wave 3 down should be next. TMF, the Bond ETF, fell 1.21 points 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. I’m just waiting for a signal change.
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
08-06-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 05 Aug 2020 |
NASDAQ | POS | 30 Jul 2020 |
GOLD | POS | 23 Jun 2020 |
U.S. DOLLAR | NEG | 24 Jun 2020 |
BONDS | POS | 22 Jul 2020 |
CRUDE OIL | POS | 06 Jul 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