Professor’s Comments December 17, 2020

Posted by OMS  at December 17th, 2020

The markets were mixed yesterday on light volume.  The Dow finished the day with a loss of 45 points, closing at 30,155. The NASDAQ and SPX were up 63 and 7 points, respectively.  Volume on the NYSE was moderate, coming in at 88 percent of its 10-day average.  There were 188 new highs and 8 new lows.

Yesterday’s trading did not produce any significant changes to the Market Timing Indicators.  The low volume day caused the volume portion of my two part timing indicator on the Dow to turn negative again, producing an overall Neutral Signal.  The volume indicator has been flip-flopping all week, as the Dow continues to trade in a narrow range.  This sideways trading has caused the Bollinger Bands on the Dow to narrow, which usually means a Big Move is coming.  That move could be either up or down.

Right now, the 35-period CCI on the Dow is showing No Trend.  However, my VTI, the indicator that generates the Market Timing Signals, continues to remain in the Up-Trend Mode.  So, with the generally Bullish Christmas Holiday season fast approaching, the odds for a major pullback before the Holiday are starting to diminish. 

The Bearish Ending Diagonal Pattern on the Dow and SPX continues to develop and as long as the Dow stays below the 14 December high of 30,326, a case can be made that the top is in.  However, IF 30,326 is broken to the upside, all that goes out the window.  A break of 30,326 would mean that the final leg of the pattern is developing into a more complex 3-3-5 flat or zig-zag pattern. This final rally should not change the overall structure of the Bearish Ending Diagonal, but it will likely delay completion of the pattern until mid-January and push the Dow closer to the 30,600 level.  This is not a cosmic shift in the planets, but it means the ‘Moon’ or final top will be closer to 36,600.  

On the other hand, any decline below Monday’s intraday low of 29,849 will negate all remaining Bullish scenarios. 

Bottom Line:  I’m short-term Bullish, but cautious, going into the Holidays….as long as the Dow stays above 29,849.  If the Dow moves above 30,326, I believe a rally toward 30,600 is in the cards. On the other hand, if the Dow breaks below 29,849, I don’t want any part of this market. The 29,849 level is my line in the sand.

Yesterday’s decline caused the volume indicator on the Dow to turn negative, so the Market Timing Indicator for that index is now Neutral. The Market Timing Indicator on the NASDAQ remains Positive. 

The Dean’s List remains positive; The Tide remains Neutral. The indicator keeping The Tide neutral is the A-D Oscillator which is currently negative.  When the A-D oscillator is negative, it means that more stocks on the NYSE are moving down than up.  This is not something you want to see in a healthy market.

The Sector Ratio remains strong at 24-0 Positive. The top 5 strong sectors were Energy, Media, Semiconductors, Service, and Healthcare.  There were no weak sectors.

Energy was the leading sector on the Strong List last night, and NBR remains the top stock on the MWL.  However, the 35-period on NBR is has fallen to 102.02, which for me is close to being exit criteria.  Other top energy stocks, like HAL, HP, and DVN have CCI’s that are either close to, but still above, the 100 level like HAL or have already fallen below 100, like HP and DVN.  So, by using the CCI as my exit criteria, the indicator is forcing me to sell some of my energy stocks that are no longer trending which is effectively reducing my overall position.  This exactly what I want to be doing as the market approaches a top. It’s keeping me in some of my strongest stocks while forcing me to take profits on others. 

Students should take a quick look at how the CCI on Three D Systems (DDD), another top stock from the MWL, kept you in the stock during its pullback last week.  Same for Cleveland Cliffs (CLF).  Student s should also note how once the CCI entered the Trend Mode, the stock took off. There’s a message there…. stay in stocks that are trending!  Dump them when they are no longer trending and making you money.  You always want your stocks working for you.  When they’re not…find another trending stock from the top of the MWL and move on.

Gold and the miners:  Lat week, several gold and mining stocks moved to the top of my weal list and it appeared that they were ready to make a move lower.   However, the indicators never gave say so, and instead, gold and the miners rallied.  The pattern allowed for that rally as the pullback that caused the miners to appear on the List turned out to be a wave 4.  Yesterday’s rally on gold to the 1,866 level should either complete wave 5 up or be close completion with one more small pop remaining.  If I’m right about this, once gold completes its wave 5 rally, it should begin to pull back with the next wave down dropping gold (the metal) down below 1,700 with 1,675 possible.  If gold continues to push higher, the ‘Moon’ is probably near or slightly above the 1,900 level.  Watch for gold and mining stocks to re-appear in my weak list comments in the weeks ahead. Not now.

BTW, IF gold is tracing out a zig-zag or flat pattern, yesterday’s high could have been wave ‘a’ up of the pattern. If this is the case, gold should begin to pull back in the days ahead in wave ‘b’ down and then have one more final rally toward 1,900 before falling. In other words, you’ll need to be patient before shorting gold and the miners.

Model Update:   The Model remains 100 percent in cash.

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.

That’s what I’m doing,

h 

Market Signals for

12-17-2020

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.