Professor’s Comments December 29, 2020
Posted by OMS at December 29th, 2020
The major markets rose early on Monday on light volume. The Dow, S&P, and NASDAQ made new highs while small cap issues lagged. The Dow finished with a gain of 204 points, closing at 30,404. The NASDAQ and SPX were up 95 and 32 points, respectively. Volume on the NYSE came in at 83 percent of its10-day average. There were 300 new highs and only 6 new lows.
For the past week or so, I have been discussing two scenarios that would define the short-term outlook for the market. In these scenarios, the key level was the 18 December high of 30,304. I said that as long as 30,304 was not broken to the upside, I had to favor the short-term Bearish scenario which would likely lead to an immediate decline in the markets. However, that all changed yesterday when the Dow broke above 30,304 telling me the Bullish scenario was underway. My target for this scenario was 30,600+.
Yesterday’s early rally was impulsive, so it was likely part of wave 3 up in the five wave sequence for final Wave 5 up. Once wave 3 up completes, probably somewhere between 30,550 to 33,575, there should be a small wave 4 pullback. After that, the Dow should push to its final high somewhere close to or above the 30,600 level. Because the pattern appears to be a double zig-zag, the rally will likely extend into mid-January before it completes. BTW, the 30,600 level should provide strong resistance to further gains as it obtained by extending a trend line from the previous highs made in June and September. Usually, the third touch of a trend line is strong resistance.
Students should note that once again, even though the major markets rallied hard yesterday, the breadth and volume was not supportive. The A-D indicator remained negative after yesterday’s session, as there were more declining issues on the NYSE than advancers. Same for volume as down volume was almost 55 percent vs. 45 percent to the upside. So, while the overall pattern suggests higher prices for the short term, cracks are developing in the supporting structure. A close below 29,750 now would confirm the Bearish case. This is up slightly from my previous line in the sand of 29,600.
Yesterday’s trading caused the Market Timing Indicator on the Dow to turn Positive. The timing indicator for the NASDAQ remains Positive.
The Dean’s List remains Positive; The Tide remains Neutral.
The Sector Ratio weakened slightly to 21-3 Positive after yesterday’s session. The top 5 strong sectors are Insurance, Media, Energy, Service, and Banks. The three weak sectors were Real Estate, Telecoms, and Food Drug.
Today’s Pop Quiz: Yesterday was an interesting day to be trading. Let’s suppose that you were watching the futures and saw that the market was going to open higher. Let’s also say that you wanted to trade one of the top stocks on the Member’s Watch List, but you were unsure as to which one to pick. Hmmm? You saw that DDD, CLF and NCR were the top three stocks. All have had nice runs and are in similar patterns. But did you know which one to choose?
The reason I’m going over this today is because this is something that happens a lot. Suppose you just took profit in your last top stock and were looking to re-enter another. But again, which one to choose?
Well, there’s only one answer. If you compared all three of the top three stocks, you would have seen that while DDD and CLF were above NCR in the rankings, they were no longer trending. Their trend indicators had moved out of the Trend Zone. So, you would not have picked either of these issues. Hey, if you just sold a stock because its trend indicator was no longer trending,…that’s your EXIT criteria, why would you pick another in the same boat? No, you wouldn’t do this. You would have picked the #3 stock, NCR because it was still trending. If you did, you had a nice day as the stock finished up 0.88 cents, after gaining as much as 1.56 cents intraday. DDD and CLF, stocks that were #1 and #2 on the List were down 0.62 and 0.49 cents for the day as they were no longer trending. Today’s take away: Trade or stay in trending stocks! Avoid stocks that are no longer trending. They could be on their way down.
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
The Markets will be closed Friday for the New Year Holiday. My next post will be on Thursday, but the comments 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.
Market Signals for
12-29-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 28 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