Professor’s Comments Election Day 11/3/2020

Posted by OMS  at November 3rd, 2020

Election Day 2020

The markets were higher yesterday, with larger cap stocks rallying hard while the techs lagged.  The Dow finished the day with a gain of 423 points, closing at 26,925.  The NASDAQ and S&P were up 46 and 40 points, respectively. Volume on the NYSE was moderate, coming in at 100 percent of its 10-day average. There were 32 new highs and 29 new lows.

In my WSR, I mentioned that it looked like some type of short-term bottom was in.   Friday’s decline appeared to complete Wave 5 of Major Wave B down, and IF this is the case (the Bullish Scenario) Major Wave C up should see the market rally after the election.  My data shows that the period a month after the election is Bullish about 70 percent of the time.  This is especially true for the week after the election with odds approaching 75 percent.  The second week after an election is usually not so Bullish, as stocks tend to pull back.  Weeks 3 and 4 tend to be Bullish, but the odds are only about 55 to 60 percent.  So, if we only look at the odds and nothing else, it appears that the next few weeks or so should be positive for the equity markets.

Another interesting piece of data that supports higher prices is the fact that the S&P posted an ‘inside down month’ in October, something that usually results in the market  trading flat to up over the next few months.  So, both data pieces support the Bullish Scenario.   Last weekend, I mentioned that my gut instinct is telling me that this would be likely be caused by a Trump victory.  But after watching ‘Asia Squawk’ last night, one of the Commentators mentioned that a rally could be caused by a Biden win, as the markets would finally get the stimulus package it was waiting for. 

Anyhow, today’s election should be interesting for sure.  It appears that no matter who wins, IF the election is decided tonight, the next week should be positive as the uncertainty surrounding the election is removed.  What happens after the election is still problematic. 

That’s because yesterday’s rally, which BTW was predicted by Friday’s small change in the A-D oscillator, could also be minor wave 2 up within Wave 3 down.  If this is happening, the Dow could trade up to the 27,600 level before falling again.  There are two gaps near 27,600 and 28,330 that remain unfilled, so if the market rallies to complete wave 2 up, both ‘gaps’ are potential targets.  This should happen within the next day or two.  Beyond that is the 12 October high of 28,958, and if this high is broached, the pattern will turn Bullish and suggest a move above the 30,000 level on the Dow.  The key level I’m watching on the Dow is 27,843. If this level is broken, the odds suggests a major reversal is taking place.  Unfortunately, this level is about 900 points above current levels, so the market will likely be trading in no man’s land for a bit longer.

Please don’t mis-understand me on this.  The markets are still in a very Bearish pattern.  If you put a gun to my head, right now I’d have to give the Bearish Scenario at least equal odds, even though the markets will likely rally after the election.  The cockpit indicators and my Scalp Trading Indicators remain Bearish.  The Scalp Trading indicators have been excellent at keeping us on the right side of the market, and if they remain negative, I MUST respect them.  That’s one of the reasons I’m currently on the sidelines…. watching.  There’s a time to watch and a time to trade.  The volume indicator on the Q’s remains negative despite yesterday’s rally and the momentum continues to head down.  There are NO divergences between price and momentum.  These are NOT the conditions that are generally favorable to successful long trades.   Be patient.

The Market Timing Indicators for the Major Indexes are Negative.  The Weekly Timing Indicators on the Dow are Negative. The same indicators on the NASDAQ (QQQ) are Neutral.

The Dean’s List is Negative.  The Tide is Neutral.

The Daily Scalp Trading Indicators on Apple (AAPL) remain negative and continue to head down.  The chart on AAPL suggests that the stock is starting a Wave 3 down. The 200-day moving average is now in the mid-90s.  That’s still over 10 points from current levels.  Also, there is NO divergence. 

The Sector Ratio improved to 11-13 Negative after yesterday’s session.   The top five strong sectors were Banks, Autos, Cap Goods, Retail, and Utilities. The top five weak sectors remain Energy, Computers, Media, FoodDrugs, and Service.

Gold (GLD) had a small pop yesterday, gaining 1.71 points to 177.91.  It’s still not clear if Wave 4 down in gold is complete.  The pattern since the 7 August top continues to suggest lower prices. The 200-day moving average at 167.53 is a target I can not ignore as long as the indicators remain neutral to negative.  I MUST see positive indicators on GLD before I re-enter the trade.

There were NO Changes to the Model after yesterday’s session.  The Model remains 100 percent in cash.  The Model will likely remain in cash until after the election.  Be patient and continue to protect yourself.

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.

Market Signals for

11-03-2020

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