Professor’s Comments March 31, 2020
Posted by OMS at March 31st, 2020
The markets had another rally yesterday on weak volume. The Dow finished with a gain of 691 points, closing at 22,327. The NASDAQ and SPX were up 272 and 85 points, respectively. Volume on the NYSE was only 68 percent of its 10-day moving average. There were 5 new highs and 59 new lows.
In this weekend’s WSR, I talked about wave counts for the current rally and how Monday’s outcome might help clarify the wave count and this week’s trading. That question was partly answered yesterday when the Dow staged a late rally into the close.
With the Dow at a level where Wave 4 up should have ended,…. if it was a Wave 4, the Model established a ‘trial’ position in DXD. This position was profitable for several minutes and produced a nice scalp trade. However, the late rally eliminated the possibility of the rally being a Wave 4 and increased the odds that it was part of Major Wave 2 up or Wave ‘B’ up. This means that the Dow will likely trade down to the 18,000 level (if it’s a Wave ‘B”) or significantly below 18,000 once Wave 2 up completes.
The question yesterday’s rally did not answer was how high will Wave 2 or ‘B’ up trade to before it completes. At this point, that’s a difficult question to answer, but I believe the 23,500 to 24,000+ level is still a possible target. This does not mean that either Wave 2 or Wave ‘B’ up will reach those target levels as the market could begin to move lower any time after today.
Today is the last day of the month, so its likely we will see some window dressing by the Mutual Funds. This should have a positive effect on the markets. However once this end-of-month window dressing completes, the markets should resume their downward course.
Last Friday, several program traders tried (unsuccessfully) to rally the market. When these large buy programs failed, it set up a negative condition for the following week. Because of this and the possibility that yesterday’s early rally could have been the completion of Wave 4 up, the Model bought a ‘trial’ position in DXD. While it recognized this purchase might have been early, it was felt the risk was justified given that the market has been seeing opening moves of 500-800 points or more to the downside.
BTW, this trade was taken after seeing negative divergence and a signal from the one minute bars. Like I said, the purchase produced a nice scalp trade, but because the 15s never turned positive, the position was not added to. The Model decided to hold these DXDs overnight, just in case it was wrong about Wave 4.
So now that the Model has a ‘trial’ position, it will look to add to this position during the next day or so. Once again, it will be looking for negative divergence and decreasing volume on the short-term bars. If these conditions are present at higher levels today, the Model will consider adding to its current holdings.
The Sector Ratio strengthened to 5-19 Negative after yesterday’s session. The Strong List was led by Household Produces (no surprise here), Material, PharmaBio, Telecoms, and Computers. Take a close look at this List and you will see the coronavirus written all over it. People are worried about equities, so they are buying gold. Most of their purchases are staples like toothpaste, toilet paper, and medications. They’re staying home, not eating at restaurants and using the internet and computers for entertainment. They’re not going to movies, theme parks, or shopping malls so they don’t need their car. That’s why it’s not surprising to see Leisure, Autos, Service, Energy, and Retail lead the Weak List.
The Model purchased a ‘trial’ position of 800 shares of DXD yesterday. It will continue to look for opportunities to add inverse index ETFs during the next few days.
The Model also continues to look for opportunities to add positions in Gold, Silver, and Bonds to the downside. The rally waves that we’ve seen in the metals and Bonds for the past few weeks still appear to be corrective. Once complete, Bond and metal ETFs 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.
Market Signals for
04-01-2020
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 27 Mar 2020 |
NASDAQ | NEG | 24 Feb 2020 |
GOLD | POS | 26 Mar 2020 |
U.S. DOLLAR | NEU | 26 Mar 2020 |
BONDS | POS | 26 Mar 2020 |
CRUDE OIL | NEG | 24 Feb 2020 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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.
Category: Professor's Comments