Professor’s Comments May 21, 2020
Posted by OMS at May 21st, 2020
The Dow rallied hard again yesterday, gaining 369 points to 24,579. The large cap index hit an intraday high of 24,649 before pulling back. The NASDAQ and SPX gained 191 and 40 points, respectively. Volume on the NYSE was moderate, coming in at 94 percent of its 10-day moving average. There were 34 new highs and 7 new lows.
Yesterday’s rally appeared to be a continuation of wave 3 up within Wave C up of Major Wave B up. My target for wave 3 up remains near the 29 April high of 24,765. However, the Dow already reached an intraday high of 24,709 during Monday’s session, so it’s possible that wave 3 up is complete and yesterday’s rally was a retracement wave within wave 4 down. If this is the case, the Dow should bounce around between 24,400 and 24,765 for the next few days before pushing higher, possibly well above the 25,000 level.
However, I remain extremely cautious about the current wave count and the possibility of a move toward or above the 25,000 level. I say this because all the up-down-up action we’ve seen for the past week can also be counted as five complete waves in the Bullish scenario. In other words, the top may already be in, especially on the S&P which has a much cleaner pattern than the Dow. Also, the P/C ratio on the CBOE closed with a reading of 0.46 yesterday, meaning investors were buying twice as many calls as puts. This EXTREME level of optimism is almost NEVER rewarded. Think back at what happened back in mid-February when we were seeing similar extreme P/C ratios. The market crashed!!!
Anyhow, with a pattern that should push the market higher, it’s troubling to see the extreme amount of optimism that is occurring at this time. On one hand you have a pattern that should only be the third wave of a five wave sequence. But on the other, all the up-down-up trading action we’ve been seeing makes it difficult to count waves. BTW, we also saw this up-down-up action happen in early February, just before the market crashed. So be careful. The required waves to completer the five waves up sequence could be hidden in the recent up-down-up action, and the next leg of the Bear market could be starting soon.
With positive indicators on the cockpit, I must remain Positive until proven otherwise. However, I must admit that I’m troubled by those unrealistic P/C ratios. I can’t ignore them.
The Dean’s List and The Tide remain Positive.
To further confuse the issue, something very strange happened yesterday with the Sector Ratio. It came in with a 24-0 Positive reading yesterday. That’s right, all 24 sectors were positive. It’s been a long time since this happen and it usually occurs when the market is trending. This is certainly NOT the case now, at least for the Dow and the small cap Russel 2K. However, the NASDAQ is in the Trend Mode with a VTI reading of 83.9 and the SPX is just short of the Trend Mode at 69.81. If the number is rounded to 70, it too is in the Trend Mode along with the NASDAQ, so it could be the Sector Ratio is trying to tell us something. If this is the case, any decline from current levels should be short lived, as what appears to be wave 3 up of final Wave C up resumes.
The Strongest Sectors were Material (includes gold), Energy, Cap Goods, Semiconductors and Healthcare.
Gold (GLD) rose 0.39 cents yesterday to 164. Gold appears to be overbought at this point and probably needs to pull back to retest the recent breakout from its wave 4 triangle. The VTI indicator for GLD remains in the Trend Mode. I should note that the HUI, the gold miners index is even more overbought than gold (the metal) at this point. I could pull back from its current level near 297 to 240 during the next few weeks. I’d view any pullback approaching 240 as an opportunity to add mining shares.
The Model continues to hold 600 shares of TBT, and 500 shares of GOLD, 40 shares of UCO, with a cash balance of $73,747.
That’s what I’m doing,
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
|DOW||POS||18 May 2020|
|NASDAQ||POS||18 May 2020|
|GOLD||POS||19 May 2020|
|U.S. DOLLAR||NEG||19 May 2020|
|BONDS||NEG||11 May 2020|
|CRUDE OIL||NEU||19 May 2020|
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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.
Category: Professor's Comments