Professor’s Comments July 16, 2020

Posted by OMS  at July 16th, 2020

The markets staged another strong opening rally yesterday on news that Moderna’s Corona 19 vaccine was ready to enter its final testing phase.  The Dow popped 368 points on the announcement to move over the 27,000 level.  However, by the close the Dow gave back a good portion of the opening gain to finish up 228 points at 26,870.  The NASDAQ and SPX also has nice gains, finishing up 61 and 29 points, respectively.  Volume on the NYSE was moderate, coming in at 103 percent of its 10-day moving average.  There were 99 new highs and only 4 new lows.

Yesterday’s early rally was interesting from a pattern perspective because the rally to 27,000+ (done in yesterday’s pre-open trading) and subsequent fall off could have formed the ‘Head’ and right Shoulder of a small Head and Shoulders pattern.  I’m not sure that this means anything at this point, because the market has been forming potential reversal patterns for the past several days only to have these patterns blown up.  However, the market still is EXTREMELY overbought, showing major divergences in breadth and the highest Put/Call ratios seen 20 years. That’s right…the highest reading from this MAJOR sentiment indicator in 20 years!!! You have to go all the way back to mid – 2000 to see P/C ratios that match the numbers we’re seeing now. So, with all these red flag warnings, I still MUST believe that a top is close at hand, and once Wave 2 up ends, it WILL do it by forming some type of major reversal pattern.

BTW, the best way to see this pattern is on the 15 min bars that shows the extended hours session.  One thing you might also want to note on the chart is last Monday’s high of 266.55.  If you draw a sideways line from that top, it comes close to intersecting the 200-period moving average at 266.88.  So, this morning, IF the DIA starts to move below 266.88, it could begin to have legs. 

Also, yesterday’s pre-opening move to 271.92 was a clear five wave move, something one would expect at the end of a rally.  In other words, yesterday’s opening spike move driven by Moderna’s announcement could have marked the completion of Major Wave 2 up.  We’ll see what happens today.   

The Timing Indicators for the Dow and NASDAQ are Positive.

The Dean’s List and The Tide are also Positive.

The VTI rose to 69.9 after yesterday’s session with a 2-period RSI at 95.09.  So, the Dow is still not in the trend mode (just barely not) with an EXTREMELY overbought RSI.  The odds suggest the Dow should begin to decline today.

Again, the thing to watch is for an initial break of the 266.88 level and then more follow on impulsive downside action.  If the action is not impulsive, there is still a chance that the Dow could retest yesterday’s highs tomorrow before Wave 2 up completes.

The Sector Ratio moved to 24-0 Positive after yesterday’s session.  Students should watch for a major change to the ratio within the next few days to confirm the recent warnings in sentiment (P/C ratio), divergence in breadth, and patterns.  The top 5 Strongest Sectors yesterday were Autos, Material, Transportation, Consumer Products, and Leisure.  

There were NO CHANGES to the Model after yesterday’s session.  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. 

Gold and the miners rose yesterday.  GLD gained 0.15 cents to 170.34. Gold (the metal) appears to be entering Wave 3 up.  It’s still not clear if the miners are going to follow the metal up or stocks down.  The trading action between the metal and the miners during the past few days suggests it will be the latter.  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

07-16-2020

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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