Professor’s Comments March 26, 2020

Posted by OMS  at March 26th, 2020

The markets staged another strong rally early yesterday but gave back about half the gain by the close.  The Dow reached an intraday high of 22,020, which was only 80 points from the upper level of the target high (22,100) I mentioned in yesterday’s comments.  Once the Dow approached this high, it pulled back to only close 496 points up at 21,200.   Technology stocks on the NASDAQ finished down 34 points while the SPX closed 28 points higher.  Volume on the NYSE was 100 percent of its 10-day moving average.  There were 3 new highs and 54 new lows.

At this point, its not clear if yesterday’s rally to 22,020 was the completion of retracement Wave ‘a’ of 4 or B up, or if was all of Wave 4 up.  Either scenario could be the case. The reason I say this is because yesterday’s rally was an a-b-c affair, so it meets the conditions of a completed retracement wave.   This is why we’ll need to watch the next down wave closely, because if it is only the middle wave of Wave ‘B’ up, it should not fall below the 20,000 level before the final wave of B up carries the Dow back above yesterday’s high.  If the next wave down falls below the 20,000 level, it’s likely that Wave 4 or B up is complete, and the Dow will re-test the 23 March low of 18,214, with a move to the 17,000-18,000 level likely.

The market timing indicators remain Negative, as does the Dean’s List.  The Tide has turned neutral which is what one would expect during a retracement wave rally.  Again, this Bear is only beginning.  Don’t get too aggressive on the long side.  The better bet now is to fade any and all rallies until the downward patterns are complete. If you are scalp trading the rallies, make sure you are out of the market by the end of the day, especially if the Dow is near or approaching my targets.

Late yesterday, when the Dow approached my upside target level, I bought several inverse index ETFs to trade the next wave down.  I took profits on about 70 percent of these inverse index ETFs near the close, which made for a nice day.  Today, I will be looking for opportunities to re-enter some of those inverse ETFs, but not as aggressively as I did yesterday.  Remember, the next wave down could only be the middle wave of B up.  If this is the case, the Dow could come roaring back in another rally leg.  So, play it close to the vest during the next day or so until we know for sure if Wave 4 or B up is over.  Remember, until proven otherwise, we MUST assume that we’re still in a retracement wave.  And retracements waves are ALWAYS tricky to trade.  You MUST see divergence if you want to trade.  No divergence, NO TRADE.  Scalps only!

The Sector Ratio remains at 1-23 Negative after yesterday’s session.  ‘Nuff said!  The only positive sector was Computers with an RS rating of zero.  The Weak Sector List was led by Service, Autos, Leisure, Banks and Media.  

There were NO CHANGES to the Model Portfolio.  It remains heavily invested in cash. 

I continue to look for opportunities to trade Gold and Bonds to the downside.  The rally waves that we’ve seen in the metals and Bonds for the past few weeks appear to be corrective. Once complete, both should begin to trade lower.

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.

BTW, thank you for sending me your feedback on how well you’ve been doing trading this Bear Market.  Christine, all I can say is …Wow!!!  Great job!!!

Market Signals for

03-26-2020

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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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.