Professor’s Comments July 14, 2020

Posted by OMS  at July 14th, 2020

The markets staged another strong rally early yesterday, then gave it back in the afternoon session.  The Dow rose to the 26,639 level, which was slightly above the 26,500 level I talked about in the WSR. Then once that target level was hit, it turned around giving back all but 11 points of the gain to finish at 26,085.  The intraday reversal produced a “Shooting Star’ candle stick pattern often seen at important tops.  The thing about Shooting Stars is that they often turn into Island Reversals, another reliable reversal pattern, so we’ll have to see what happens today.

The NASDAQ and SPX also had potential reversal days, closing down 227 and 30 points, respectively.  Volume on the decline was a lot heavier than what we’ve been seeing during the past week, coming in at 106 percent of its 10 day average.  This might not seem like much but compared to the extremely low volume (80-85 percent) we’ve been seeing, it’s a lot.  Also, the important thing to note was that the high volume occurred on the downside.  There were 119 new highs and 6 new lows.

While yesterday was an important day from a candlestick perspective, it didn’t produce any important changes to the market timing indicators. The Timing Indicator for the Dow remains Neutral while the indicator for the NASDAQ remains Positive.

The Dean’s List and The Tide are Neutral.

For today’s session, I’m gonna stick with what I said in the WSR, …that students should understand that once Wave 2 completes, possibly within days, Wave 3 down of Major Wave 3 down should begin.  This set of waves should be a powerful decline that drops prices below the 23,000 level.  By the time all five waves of the sequence are complete, the Dow should be trading below the 18,000 level.

The VTI rose to 60.56 after yesterday’s session with a 2-period RSI at 66.86.  The VTI will need to turn lower before I add any inverse shares to the Model Portfolio.  By continuing to rise, the VTI is telling me it’s still too early to get aggressive. BTW, with this week being options expiration week and seeing the VTI with a high-neutral reading of 60+, there’s a good possibility that any Big Move in the markets will be delayed until next week. Options expiration week is usually Bullish, but the moves tend to be small. Also remember, for any large down trend to begin, the VTI will need to move below 30 and right now its still above 50.

So, after yesterday’s session, the thing I want to see now is a five wave decline on the short term bars for Wave 1 down followed by a three wave a-b-c retracement for wave 2 up.  This down-up action will likely take 3-5 days to develop. If this happens, I’ll go to full Red Alert as Wave 3 down of Major Wave 3 down is likely right around the corner.

Students should also watch for any impulsive action now to the downside, as it would increase the odds that Wave 3 down is underway.  

The Sector Ratio stayed at 19-5 Positive after yesterday’s volatile session.  Students should watch for a major change to the ratio within the next few days to confirm what we’re seeing from the reversal candle stick patterns. The top 5 Strongest Sectors yesterday were Material, Autos, Semiconductors, Cap Goods, and Household Products.  The top five Weak Sectors were Energy, Banks, Leisure, Service, and Telecoms. 

The Model continues to hold 1,200 shares of TWM, 1,600 shares of DXD, 400 shares of DUST, and a lot of cash.  It continues to look for opportunities to buy shares of inverse index ETFs.  The Model will become aggressively negative if the Dow falls below the 25,000 level. 

Gold rose, but the miners fell on Monday, following stocks down.  This is something I will be watching during the next few day as I want to see if this ‘following stocks’ vs. ‘following gold’ relationship continues.  If it does, now that the HUI has reached its upper trend line, it should continue to fall.  My target for the HUI remains near or below the 240 level.  

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

07-14-2020

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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