Professor’s Comments February 4, 2020

Posted by OMS  at February 4th, 2020

The markets rose yesterday retracing some of Friday’s decline. It’s likely that the retracement is not over.  As I mentioned last week, the retracement could take the Dow back to the 28,800+/- level before Wave 2 up completes. 

The Dow finished with a gain of 140 points, closing at 28,400.  The NASDAQ and SPX were up 122 and 23 points, respectively.  Volume on the NYSE was moderate, coming in at 97 percent of its 10-day moving average.  There were 141 new highs and 85 new lows.

Yesterday’s early rally and late pullback appeared to be waves ‘a’ and ‘b of Wave 2 up.  If this is the case, wave ‘c’ up of 2 should take the Dow back to the 28,800 level.  If this happens in the next day or so, the Model will begin to add to the ‘trial’ short position it established yesterday.

The thing to keep in mind during the next few days is something I said last week. IF Friday’s decline was the completion of Wave 1 down in the new Bear Market, then we MUST have a Wave 2 bounce.  Bear market declines NEVER go straight down at the beginning. They MUST establish Waves 1 down and 2 up before the real damage starts to occur.  So, pay attention to any rally.  Now that the Dow has broken below its lower trend line support near 28,500, we should be looking to fade any rally.  If Waves 1 down and 2 up develop as I expect, they will form a Hockey Stick Pattern that will enable us to project targets for the next leg down.  Seeing a negative Hockey Pattern will increase the odds for positions in inverse index ETFs.

After Monday’s session, the Dow, SPX (SPY) and Russell 2K remain on Sell Signals.  The NASDAQ remains on a Neutral signal.  The Dean’s List turned Neutral while The Tide remains Negative. The DMI on the Dow is Negative while the same indicator on the NASDAQ-100 (QQQ) remains Positive. 

The Sector Ratio strengthened to 11-13 Negative.  The Strong Sector List was led by Household Products, Food, Real Estate, Computers, and Utilities. The Weak Sector List was led by Energy, Service, Autos, Banks and Transportation. 

Model Portfolio:  The Model bought a ‘trial’ position of 1,000 shares of DXD during Monday’s session.  The Model plans to add to this position if the Dow moves closer to or above the 28,700 level.

Be patient. Once Wave 2 up completes, I believe the Dow will move a lot lower before it reaches its final low near or below the 23,000 level. The December 2018 low of 21,713 remains a realistic target. My current target for a Wave 2 retracement in the SPX is near the 3320+ level.

BTW, Bonds are overbought at this point.  If the Dow rallies, Bonds should pullback. The Model will be looking to re-enter TMF at prices closer to the 50-day moving average, near 28.5.

The Dollar is at a point where it could be getting ready to start Wave 5 down. If this is the case, gold could be ready to start its next rally leg.

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

02-04-2020

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.