Professor’s Comments May 19, 2020
Posted by OMS at May 19th, 2020
The Dow rallied hard yesterday, gaining 912 points to 24,709. I expected a rally, but NOT 912 points. The rally changed the wave count and put the previous five wave scenario I discarded last week back in play. Last week I put the odds for this rally at only 25 percent, mostly because there were two back to back large impulsive days down. This made me conclude that Major Wave B up was likely over and Major Wave C down was underway. But like I always say, corrective waves have a mind of their own. And yesterday’s rally showed one again how quickly things can change when the market is not in the trend mode.
The NASDAQ and SPX gained 220 and 90 points, respectively. Volume on the NYSE was heavy, coming in at 120 percent of its 10-day moving average. There were 45 new highs and 8 new lows.
Yesterday’s rally was likely part or all of wave 3 up within Wave C up of Major Wave B up. My previous target for wave 3 up was and remains the 29 April high of 24,765. However, the Dow reached an intraday high of 24,709 yesterday, so it’s possible that wave 3 up is complete and the wave 4 pullback is underway. If this is the case, the Dow should fall to about the 24,400 level during the next few days before wave 5 up pushes the Dow back above the 25,000 level.
BTW, because the Dow fell to 22,790 last week in what now appears to be wave 2, I MUST raise my target for final wave 5 of C up to a range anywhere between 25,000 to 25,850. That’s a pretty big range, so IF the Dow pulls back during the next few days and approaches 24,400, the Model will sell its current position in DXD and move to the sidelines. With positive indicators on the cockpit, and a positive Tide, the Model does not want to be on the wrong side of the indicators and buck the current pattern.
The one reason that the Model is still cautious about the long side of the market is the sentiment. Near yesterday’s close, the Put/ Call on the CBOE pushed to .61, only a small way from the EXTREME reading (.55) we saw near the markets peak on 19 February. P/C ratios like this reflect extreme investor optimism, and while their warning can be early, they are almost never wrong. It’s never a good bet to be on the long side of a market that reflects an extreme amount of call buying.
Also, whenever the Dow gaps up as it did yesterday on heavy volume, it’s usually a better bet as a short-term short than a long during the next few days. The unfilled upside gap, which in this case is the 23,685 level, is always a possible target. I don’t believe the Dow will fall this low because of yesterday’s heavy volume, but it remains a possibility. This is a case where students might want to watch the short-term indicators, exiting the DXDs when the opportunity presents.
The Dean’s List and The Tide have turned Positive.
The Sector Ratio strengthened to 11-13 Negative after yesterday’s session. The Strongest Sectors were Material (includes gold), Cap Goods, Energy, Computers, and PharmaBio. The top 5 Weakest Sectors were Banks, Service, Transportation, Media, and Consumer Products.
Gold (GLD) fell 1.24 yesterday to 162.69. The pattern continues to suggest a break-out from its wave 4 triangle as the VTI indicator remains in the Trend Mode.
The Model continues to hold 600 shares of TBT, and 500 shares of GOLD, 40 shares of UCO, and 1000 shares of DXD, with a cash balance of $51,897. The Model is waiting for a pullback to exit its ‘trial’ position in DXDs.
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
05-19-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 18 May 2020 |
NASDAQ | POS | 18 May 2020 |
GOLD | NEU | 18 May 2020 |
U.S. DOLLAR | NEU | 18 May 2020 |
BONDS | NEG | 11 May 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