Professor’s Comments December 22, 2020
Posted by OMS at December 22nd, 2020
The markets were mixed yesterday on moderate volume. The Dow started the day by falling over 400 points. For about an hour it looked like the large breakdown I expected was underway. However once the Dow touched the 29,760 level, it started to rally, climbing all the way back to 30,300, just a few points shy of Friday’s high of 30,344 before pulling back into the close. The Dow still has nor broken below the 29,600 level to confirm completion of the Ending Diagonal pattern.
Yesterday’s trading made for an interesting pattern to analyze, as the large intraday rally was not expected. However, the fact that Friday’s decline from its high together with yesterday’s opening fall was a distinct five wave affair, so yesterday’s rally, even though it was almost straight up, was likely part or all of a retracement wave 2 up. This means that once the retracement wave completes, probably either today or tomorrow, the markets should begin to fall hard again. A decline below yesterday’s low would be a good indication that wave 3 down is underway with a target near the 12 November low of 28,902. This is my primary scenario.
However, because there was no follow through after yesterday’s early decline, there is now an alternate pattern on the Board. This pattern suggests the pattern we have been witnessing the past month is NOT an Ending Diagonal and is part of a much larger pattern that could push the Dow to a new high. While I give this alternate pattern low odds, I MUST mention it because IF the Timing Indicators remain strong, I need to look for patterns that support the indicators. This is the reason a break of yesterday’s low is so important. If the market is starting to break down, it MUST start to produce a series of lower lows. Otherwise, something else is could be happening.
One thing I did note about yesterday’s trading was that even though the Dow was up on the day, 22 of the 30 Dow stocks finished lower. However, the big difference in breadth was not enough to turn the Hi-Lo indicator negative, so overall The Tide remains Neutral.
The NASDAQ and S&P finished the day down 13 and 14 points, respectively. Volume on the NYSE was moderate, coming in at 98 percent of its 10-day average. There were 177 new highs and 6 new lows.
Yesterday’s trading did produce any changes to the Market Timing Indicators. The Dow remains Neutral while the NASDAQ stayed on its Positive signal. The Bollinger Bands on the Daily chart of the Dow continue to tighten. Tight Bands usually mean that a Big Move is coming. Be careful if the market begins to move down.
The Dean’s List remains Positive; The Tide remains Neutral. If the Hi-Lo indicator turns Negative, be careful! You do not want to see the breadth turn totally negative in this market.
I remain on Red Alert.
The Sector Ratio remains strong at 23-1 Positive. The top 5 strong sectors are Energy, Media, Service, Material and Financial. The one weak sector is Real Estate.
Gold, the miners, and the Dollar: Yesterday’s trading in the Dollar was interesting because its small rally appeared to be a wave 4 within a five wave down sequence to complete Major Wave C down. If this is the case, the Dollar should begin to rally which will likely produce a decline in gold prices. Last week, I said gold (the metal) would likely make one more rally to complete its zig-zag pattern. Once this pattern is complete, gold should fall below 1,700, with 1,675 to 1,690 being likely targets. I continue to look for gold and mining stocks to appear on the Weak List. They’re still not there in mass, so it’s still a bit early.
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.
The Markets will be closed Friday for Christmas. They will also be closed the following Friday for the New Year holiday. I will continue to post my Comments during the Holiday period, but they will likely be a bit briefer than usual. On the other hand, if something unusual happens or something changes, I will post my take on the change immediately.
That’s what I’m doing,
h
Market Signals for
12-22-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 18 Dec 2020 |
NASDAQ | POS | 23 Nov 2020 |
GOLD | NEU | 17 Dec 2020 |
U.S. DOLLAR | NEG | 07 Dec 2020 |
BONDS | NEG | 09 Dec 2020 |
CRUDE OIL | POS | 11 Nov 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