Professor’s Comments May 27, 2021
Posted by OMS at May 27th, 2021
Since the 12 May low, the indexes have been forming a rising 3-3-5 flat pattern for retracement wave 2 up. That pattern appears complete as of yesterday’s close. The next major move in the indexes should be wave 3 down.
The Memorial Day Holiday weekend is usually a bullish period for the market, so it’s possible that the wave 3 decline that I see coming could be delayed until after trading resumes next Tuesday. The S&P has a lower trend line just under the 4100 level that I’m using as my break point. In other words, if the S&P stays above this trend line, the markets should hold up into the weekend. However, if 4100 is broken today or tomorrow, it will be my signal that wave 3 down is starting.
Once Wave 3 down starts, it should immediately fill the small gap near the 4155 level. If this happens, the next target is the gap near 4115. Filling both gaps would confirm that Wave 3 down is underway and increase the potential for a major decline in the weeks ahead.
On the other hand, if the S&P stays above 4100, its possible that the 3-3-5 flat is not a flat, but a simple a-b-c retracement pattern. If this is the case, the ‘c’ wave of the pattern could re-test the 7 May high of 4238 before falling. I believe this alternate scenario has a low probability of occurring, but I must mention it given the bullish holiday bias. Yesterday the S&P closed at 4196.
The pattern on the Dow is essentially the same as the S&P. Tuesday’s high of 34,511 was not broken yesterday, so it’s possible that wave 3 down is underway on that index. If it is, the decline needs to start looking impulsive. Yesterday’s trading action was anything but impulsive, but that’s OK if it was one of the sub-waves. If it was, the next day or so need to be a strong down day. An impulsive break of 34,100 would be the first indication that wave 3 down is starting.
My intermediate target for Wave 3 down on the Dow is near the 32,500 level. I’m still using the 3,900 to 3,910 level on the S&P as my initial target for Wave 3 down, and 11,700-11,800 on the NASDAQ, with 11,500 possible.
The Market Timing Indicators on the Dow and NASDAQ have turned Neutral after yesterday’s session. The ST Indicators for the Dow (DIA) and NASDAQ-100 (QQQ) are Positive. The same ST Indicators on the S&P (SPY) remain Neutral.
The Dean’s List remains Positive. The Tide remains Neutral.
The Sector Ratio strengthened to 21-3 Positive after Wednesday’s session. The top 5 strong sectors were Service, Autos, Leisure, Computers, and Semiconductors. The Service Sector still has the highest RS ranking at 5. All the other sectors on the Strong List have rankings of 0, 1s, and 2s. In other words, the RS rankings are still not suggesting a lot of strength. The three weak sectors were Media, Telecoms, and Consumer Products. Continue watch for increasing weakness in the Sector Ratio as the week progresses.
Model Update: There were NO Changes to the Model. It remains 100 percent in cash.
Top Stocks: The Top Stock from Tuesday’s MWL was GameStop (GME). Now you all know what I think about the stock….so I won’t go into that. But here’s the thing: It was the #1 ranked stock on Tuesday’s List. So, what did it do on Wednesday? It blasted 33 points higher for a one day gain of over 16 percent! Again, I’m not advocating GME. But the thing that impresses me is the ability of the algorithm behind the MWL to identify consistent winners. Imagine if you bought an option on GME when you saw it move to the #6 position on Monday’s list at 180. Then to 209 on Tuesday, and 242+ yesterday. Wow!
BTW, the #2 stock from Tuesday’s List was Three D Systems (DDD). It gained 2.4 points yesterday to 29.37.
Gold: Gold remains at a major crossroads as it continues to push higher. In my previous comments, I said that gold could trade to the 1,950 level if it remains above its Upper Trend Line. Yesterday, the metal got as high as 1,915 before pulling back. I found it interesting that yesterday’s intraday high was stopped by a Fibonacci retracement level, so it’s still possible that the rally since 8 March is corrective. If this is the case, gold should start to pull back soon. A break below 1,860 would suggest that the rally in gold has ended.
Bonds: No change in my analysis for Bonds. They still appear to be stuck in a wave 2 retracement within Wave 5 down. I consider Bonds to be dead money here, believing that there are much better trading opportunities elsewhere.
That’s what I’m doing,
h
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
05-27-2021
DMI (DIA) | NEG |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 24 May 2021 |
NASDAQ | NEU | 24 May 2021 |
GOLD | POS | 06 May 2021 |
U.S. DOLLAR | NEG | 12 Apr 2021 |
BONDS | NEG | 11 May 2021 |
CRUDE OIL | NEU | 25 May 2021 |
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