Professor’s Comments July 21, 2020
Posted by OMS at July 21st, 2020
The markets were mostly higher yesterday with large cap tech stocks having the better day. The Dow finished up 9 points closing at 26,672 while the tech heavy NASDAQ rose a whopping 264 points. The rally was interesting in that the 2.5 percent rise was accomplished with only 48.5 percent of the shares participating. Think about that for a minute. It’s pretty amazing. The same thing happened on the S&P where the index finished 27 points higher with only 35 percent of its stocks rising. Same thing happened with the breadth and volume on the NYSE. The Dow rose, but 55 percent of its stocks declined. Volume was only 90 percent of its 10-day average. There were 113 new highs and 10 new lows. It was a very strange day!
This morning I want to talk about what’s happening with this large cap tech stock rally on the NASDAQ. In my WSR. I talked about the different patterns between the NASDAQ and the other indexes. The DOW, SPX, and Russell 2K appear to be in the final stages of completing a Wave 2 while the NASDAQ appears to be in a rising channel for a Wave 5. After seeing Netflix get clobbered last week, I thought the NASDAQ was on the cusp of a major decline. But I said IF the index didn’t fall immediately, it would likely make one more pop above the15 July high of 10,604 before falling. So yesterday, the NASDAQ did pop, but the 264 points was a lot higher than I expected (I used 10,610 as my target). The bottom line is that by closing at 10,767 which exceeded the 15 July high, it’s now likely the NASDAQ will re-test the 13 July high of 11,069 with 11,250+ possible.
On the other hand, because of the significant divergences I’m seeing in both breadth and volume, these new targets DO NOT have to be reached. The overall patterns, except for the NASDAQ appear to have 5 complete waves and could start down at any time now. And if this happens, the other indexes will put pressure on the NASDAQ. As I’ve said many times on these pages, when the troops stop following the generals, it’s usually only a matter of time before the generals turn around and lead the retreat. But until this happens, the NASDAQ is likely going to push a bit higher.
I’m still seeing major divergences between breadth, volume, and price at the same time I’m seeing EXTREME readings in sentiment. As I mentioned this weekend, the P/C ratio is now at its lowest level in 20 years! The Investors Intelligence Advisors’ Survey is at 58.1 percent, the highest level since the January extreme reading of 59.4. There sentiment readings reflect EXTREME levels of investor optimism. I do not believe this EXTREME optimism is justified, not now or ever!
BTW, this rally is happening at a time when the U.S. Growth rate contacted by 5 percent in the first quarter 2020 with unemployment hovering near 18 percent, the highest level since the Great Depression where it reached a peak of 24.9 percent. In 2008, the unemployment rate was 10.8 percent, so we’re currently about 7 percentage points …if you believe the government’s numbers. In the current market, GDP growth, company earnings, and unemployment don’t seem to matter. I find this amazing!
The Market Timing Indicators for the Major Indexes remain Positive.
The Dean’s List and Tide are Positive.
The Sector Ratio rose to 23-1 Positive after yesterday’s session. Continue to watch this indicator closely in the days ahead. If it starts to weaken, pay attention. My 14-period Velocity indicator for the Composite Sectors rose yesterday, but it’s still close to the zero line. When it begins to fall below zero, it usually identifies an important market turn. But meanwhile, it’s still above zero, so with a positive Sector Ratio AND a positive Velocity indicator the rally in the sectors should continue.
The top five strong sectors were Autos, Material, Cap Goods, Semiconductors, and Consumer Products. The weak sector was the Banks.
There were NO CHANGES to the Model on Monday. 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 rose 0.82 cents to 170.94. After finishing its small wave 4 triangle, the metal appears to be in a wave 5 rally that could see slightly higher prices. Once this rally completes, the next wave down should take prices significantly lower.
That’s what I’m doing,
h
Market Signals for
07-21-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 14 Jul 2020 |
NASDAQ | POS | 18 May 2020 |
GOLD | POS | 23 Jun 2020 |
U.S. DOLLAR | NEG | 24 Jun 2020 |
BONDS | NEU | 06 Jul 2020 |
CRUDE OIL | POS | 06 Jul 2020 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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Category: Professor's Comments