Professor’s Comments December 24, 2019
Posted by OMS at December 24th, 2019
The market continued its Santa Rally yesterday. The Dow finished with a gain of 96 points, closing at 28,552. The NASDAQ and SPX were up 21 and 3 points, respectively. Pre-holiday volume on the NYSE was extremely low, coming in at 78 percent of its 10-day moving average. There were 199 new highs and 12 new lows.
The Dow continues to trade in a narrow rising channel with a lower trend line now near the 28,550 level. A break of this trend line, and a decline below 28,425 should mark the beginning of a long-term down trend in equities. Given that this week is Christmas, which tends to be very Bullish, I would expect the Santa Rally to continue into year’s end, possibly into the first week of January. Beyond that, things should begin to turn very negative. BTW, the lower trend line numbers I’m watching to signal the start of a decline in the S&P and NASDAQ are the 3,191 and 8,560 levels.
The Dow, NASDAQ, SPY, and Russell 2K remain on Buy Signals. However, final wave five of Wave 5 up has now completed all five of its required waves, so the signals could change to negative anytime now.
The markets remain at a critical point in their patterns, showing negative divergences and sentiment readings that suggest they could begin to change direction in the days ahead. Students should remember that only last Friday, the Put/Call ratio on the CBO had a reading of 0.63, the lowest in three years. The last time the Put/Call ratio had a reading near that level was on 27 January 2018, which was three days from the top of intermediate Wave 3 of the current Major Ending Diagonal Pattern. The Dow was down over 3,200 points less than a month later.
If the Dow begins to trade below 28,425 between now and year’s end, it will likely mark the first step in the next decline. However, it will take a break of the 27,325 level to confirm that the next Major decline (the next Bear Market) is underway. Once 27,325 is broken, the market will likely work its way back down to the 21,700 level which is where the year-long Ending Diagonal Pattern started back in December 2018.
The Dean’s List and Tide remain Positive.
The Sector Ratio remains at 24-0 Positive after Monday’s session. Students should continue to watch for signs that the Ratio is weakening before becoming aggressive to the shot side. The Strongest Sectors were Healthcare, Energy, Retail, Semiconductors, and PharmaBio. There were NO weak sectors.
Because the Sector Ratio remains strong, I remain reluctant to get aggressive on the short side with the Model Portfolio and only have a few ‘trial’ inverse positions working. Once the Dow begins to break below its lower trend line, the Model will start becoming aggressive to the short side.
Gold (GLD) rose 0.43 cents yesterday to 139.95. Gold remain on a Buy Signal with narrow Bollinger Bands. Narrow Bands usually mean that a Big Move is coming, so gold could be starting Wave 5 up. Right now, the Model is holding a small ‘trial’ position in GDX which rose 0.64 cents yesterday along with gold. The rise caused the 2-period RSI on GDX to become slightly overbought. If GDX pulls back today, the Model will look to add to its position. BTW, I still don’t believe that the miners are out of the woods with respect to the start of the wave 5 rally. However, the odds are beginning to favor a rally in gold, which will likely start to strengthen as equities begin to decline.
Bonds (TMF) remain on a Sell Signal. Yesterday, TMF dropped 0.16 cents to 26.42 causing its VTI indicator to enter the Down Trend Mode. This means that Bonds could be entering the next wave down within Wave 3 down. I say ‘could’ because the historic relationship between Bonds and equities is not favorable for a significant decline now. In the past, Bonds have performed well in a declining equity market as money tends to flow out of equities and into Bonds as they are perceived as a safe haven. However now that the VTI indicator is trending, the Model will start looking to buy a small position in TBT, the inverse ETF for Bonds. The Model is looking at this purchase as a trade only.
UCO (crude oil ETF) rose 0.24 cents to 20.2 yesterday. Crude Oil remains on a Neutral Signal. If the signal turns Negative (on UCO), the Model will add to its ‘trial’ position in SCO as the next wave down should drop the price of crude about 10 points, down to the about the 50ish level.
There were NO CHANGES to the Model after yesterday’s session. The Model continues to hold 1,000 shares of SCO, 1,000 shares of DXD, 300 shares of SQQQ, 500 shares of GDX with a cash balance of $74,167. The Model is currently up 29.7 percent since it started on 26 February 2019.
I continue to believe that positions established in inverse index ETFs from current or higher levels on the Dow will prove to be big winners in the months ahead once Wave 5 up completes. My initial target for the next Wave down remains at the 26,600 level. Beyond that, prices should move significantly lower after all five waves are complete, probably back down to the December 2018 low of 21,713.
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.
BTW, the markets will close early today (1pm) and be closed tomorrow, 25 December for Christmas. If something significant happens in today’s shortened session, I’ll post a few early comments on Thursday. Otherwise, my next update will be the WSR on Saturday.
I wish you a Merry Christmas and a Happy Hanukkah!
Market Signals for
12-24-2019
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 11 Dec 2019 |
NASDAQ | POS | 12 Dec 2019 |
GOLD | POS | 13 Dec 2019 |
U.S. DOLLAR | NEG | 09 Dec 2019 |
BONDS | NEG | 12 Dec 2019 |
CRUDE OIL | NEU | 20 Dec 2019 |
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