Professor’s Comments Before the Open 10/9/2020

Posted by OMS  at October 9th, 2020

After looking at the performance of the Model since its inception, I’ve decided to make a few changes.  The Model performed well during its first year, up over 32 percent.  However, in the past eight months, a bad trade in crude oil and the extreme volatility has caused the Model to lose money.  It’s currently down about 15 percent.  Leveraged ETFs are great when market is moving in one direction or the other, but under choppy, volatile conditions, like we’ve seen since February, the inherent slippage in leveraged ETFs make them unsuitable as longer term holdings. Because of this, the Model will no longer use leveraged ETFs.  Instead I’ve found that shifting to holding the Nasdaq100 (QQQ) when conditions are deemed low-risk and then moving to cash is a far superior strategy. This simple shift would have nearly doubled the overall return of the Model while lowering draw downs.

Looking back, over a thirty-year period since 1990, if the Model had adopted this simple strategy, it would have experienced one draw down of more than 15%.  In that same time, the Model would have quadrupled the return of buy and holding the S&P while sitting in cash 55% of the time.  In other words, it would have had the return of the Nasdaq100 with a lot less drama.

This new shift in strategy for the Model is more consistent with the conservative objectives of most of my subscribers.  It also takes advantage of the superior performance of the technology driven NASDAQ stocks during periods when they are moving up and reduces the risk when they begin to move down.

As I’ve said many times before, the Model should only be used as a guide.  If you want to trade the market, the Market Timing Signals are much more appropriate indicators. These are the signals I use to manage most of my money.

Also, because of the success I’ve had with my new Scalp Trading Indicators, I will be using these indicators to make changes to the Model.  During the past few months, I have been asked many times if I could release my proprietary VTI, which I use to generate the Market Timing Signals on the cockpit.  I don’t want to do this.  However, because I have released my Scalp Trading Indicators, students can now use these indicators to track the performance of the Model.  As of last night, the daily Scalp Trading Indicators on the QQQ are Positive, so the Model will be going long the NASDAQ-100 at today’s open.  I’m still a little concerned about entering the QQQ now, mostly because Apple (AAPL) is in a pattern where it could move either up or down and take the NASDAQ with it. So, here’s the deal:  At today’s open, the Model will establish a 50 percent long position in QQQ.  If Apple moves above 115.55, the Model will go 100 percent long QQQ.  I will also look to trade Apple in my own account based on the 30s.  Again, as I mentioned in my follow-on training session, the huge volume in Apple makes the Scalp Trading volume indicators especially effective.  Always make sure you are on the right side of these indicators.

It appears that the decline from the 3 September high into the 24 September low was a Wave 4. If this is the case, Wave 5 up should cause the QQQ to rally above the 3 September high before any major decline begins.

As we move forward, I might consider making other changes to the Model to take advantage of a potential rally in gold and the decline in the indexes I see coming once Wave 5 up completes, instead of just going to all cash.  As most of you know, I like to trade and own gold in my own accounts, so I would like to have a portion of the Model in an ETF like GLD. However because GLD is still on a Negative signal, I’m not going to put it into the Model for now.  We’ll see.

BTW, as of last night the Sector Ratio is still 23-1 Positive, with the only negative sector being Energy.

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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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