Professor’s Comments June 9, 2020

Posted by OMS  at June 9th, 2020

The indexes rallied hard again yesterday on strong volume. The Dow finished with a gain of 461 points, closing at 27,572.  The NASDAQ and SPX gained 111 and 38 points, respectively.  Volume on the NYSE was come in at 134 percent of its 10-day average. This was off slightly from Friday’s volume which was 147 percent of the 10 day average, which could be a sign the market is weakening.  There were 57 new highs and 4 new lows. 

Once again, there’s a possibility that yesterday’s rally was the completion of Wave C of Major Wave B up.  If not, it could also be the completion of wave 3 up with waves 4 down and 5 up still to come.  If the next pullback is complex and NOT impulsive, the odds will be high that it’s a wave 4. Otherwise, the next decline could mark the start of Wave 1 of Major Wave C down. Once all five waves of Major Wave C down are complete, the Dow should be trading below the 18,000 level, with significantly lower levels possible. BTW, once the decline starts, I expect the initial fall to be swift.

The market remains EXTREMELY overbought.  Yesterday the 2-period RSI on the SPX closed with a reading of 96.99.  This was slightly lower than its reading on 3 June of 99.16.  The diverging volume usually results in a pullback the following day.  Also, yesterday the A-D oscillator had an EXTREME reading of 333.64.  Unusually high readings like this usually result in a pullback the following day.  

The Market Timing Indicators for the Major Indexes remain Positive.

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

The Sector Ratio stayed at 24-0 Positive after Monday’s session.  The top 5 strongest Sectors were Energy, Service, Leisure, Autos and Material.

Gold and the miners rose yesterday. GLD rose 1.71 points to 159.72.  The overall pattern for gold appears to be a wave 2 retracement.  Once complete, gold should resume its upward course.  I’m avoiding gold for now, but if the indicators turn positive, I’ll look to add a few shares to the Model.

The HUI closed at 263 yesterday. I’d like to see it closer to 240. That might not happen.

The Model sold its shares of UCO yesterday.  The rally in Crude Oil appears to be nearing completion and the Model would rather use the money to buy inverse ETFs.  So, after the sale of UCO, the Model now only holds 1,200 shares of DXD with a cash balance of $78,315.

Depending on what happens during the next few days, the Model will look to increase its position in DXD, and establish positions in TWM and QID, the inverse ETFs for the Russell 2K and NASDAQ-100.  If gold continues to pull back causing the HUI to approach the 240 level, the Model will look to establish positions in GDX and GDXJ.

That’s what I’m doing,

h

During the weekend, I received an email from a long time student that I thought I’d share with you today.  As you know, during the past two months, I have been reluctant to take longer term positions in the Model, mostly because of its conservative nature. I don’t believe that buying and holding in a retracement rally, when the primary trend is down, is good practice…despite the strength of the current rally.  So, two months ago, I released my Scalp Trading Class so students could follow the Market Timing Indicators and trade the rally using conservative techniques. This enabled them to profit from the rally AND reduce risk by keeping them out of the market overnight.  This is how I trade a retracement rally.  

Since releasing the Class, I have received many emails from my students telling me how much they enjoyed the course.  But the one I received from Gene S. was especially rewarding for me.  Many of you know Gene from my Update Classes, so as you read his words, think about what kind of person and trader he is.  He doesn’t spend his life in front of a computer. He’s a regular guy that spends time with his kids and grand kids…just like many of you.  And now that he’s taken the Class, he’s trading the Bear Market rally using conservative principles and making money.  BTW, Gene gave me permission to use his email.  He said, “If I’m somehow able to help another student, it would be my small way of giving back.” Is that typical Gene or what?  Here’s the email:

Professor,

I wanted to give you feedback about the Scalp Trading Class.  I’m still taking care of my 2 1/2 year old grandson during the pandemic, which limits how much time I have to scalp trade.  Good news is that he will be returning to daycare next month.

This past week, I was 8 for 8 in trades, and am riding a streak of 12 straight.  Amazing!  I’m not doing large dollar amounts yet (usually between 500 to 1000 shares depending on share price), but I made around $2,200 this week.  To tell the truth, I’ll take that every week and be very thankful.  I’m taking profits pretty quick since I never know if I’m going to have to leave the trading desk to take care of my grandson.

After your class, I initially struggled with a success rate of about 50% (but still made enough to cover the cost of the class).  My success rate really took off after your follow on class and watching the video again.  It made me aware of some things I overlooked in the initial class, like taking some money off the table when the VZO gets above 60.  It reinforces the power of managing money.  I’m also making SURE I see divergence and have high cover before taking a trade.

Thanks again for sharing the secrets of your success.

Gene

Market Signals for

06-09-2020

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