Professor’s Comments May 7, 2020

Posted by OMS  at May 7th, 2020

The market continued its decline yesterday in what appeared to be the completion of corrective Wave 2 down of Wave C up within Major Wave B up.  The Dow finished with a loss of 218 points, closing at 23,665. The NASDAQ and SPX were down 45 and 20 points, respectively. Volume on the NYSE was moderate, coming in at 94 percent of its 10-day moving average.  There were 24new highs and 19 new lows.

If yesterday’s decline was Wave 2 down, the markets should begin a strong rally today. That rally should be Wave 3 up within Wave C of Major Wave B up.  It should carry the Dow back to the 24,700 level+/- and take a week or so to complete.  After that, there should be a small pullback for Wave 4 and then a final rally to the 25,000 to 25,500 level, possibly a bit higher.  No guarantees.  Then once all five waves of Major Wave B up are complete, another crash wave …Major Wave C down similar to Major Wave A down should drop the Dow to the 17,000 level or lower. This is my primary scenario. IF the Dow falls below Monday’s low of 23,361, all Bullish bets are off.

Students might want to look at how narrow the Bollinger Bands on the Dow have become. If the market starts to move higher, we could get a Band Squeeze.

The Market Timing Indicators for the Major Indexes remain Neutral.

The Dean’s List remains Positive.  The Tide has turned Neutral as the A/D oscillator and the Summation Index have turned negative.  Seeing the A-D oscillator turn negative is not a healthy sign.  It means that more stocks are declining than advancing.

The Sector Ration strengthened to 13-11 Positive after yesterday’s session.  The Strongest Sectors were Material (includes gold), Energy, Cap Goods, Computers and Household Products.  Seeing Cap Goods and Computers appear on the Strong List is a good sign for a rally.  Also, for the past 5 days, the Banking Sector has closed lower while the technology laden NASDAQ has stayed relatively strong. In other words, even though the markets haven’t done much for the past week, money appears to be rotating out of the conservative banks and into technology.  This type of sector rotation (into technology) usually leads to a short-term rally.

The Weakest Sectors were Real Estate, Media, Insurance, Autos, and Banks.  

Gold and the miners fell yesterday within their sideways triangle for wave 4.  The 2-period RSI on GLD had an oversold reading of 21.9 yesterday with a VTI showing NO Trend.  So, gold should rally today.  The market timing indicators on GLD remain Neutral.  If GLD begins to break out of its triangle, causing the Timing Indicators to turn Positive, I will look to Scalp Trade gold and mining stocks to the long side. My target for gold (the metal) remains above the 1,900 level, with 19,500 to 2,000 possible.

Bonds appear to have completed their Wave B retracement rally and are now gaining downside momentum. The 2-period RSI on TMF is oversold after yesterday’s loss of 2.08 points with a VTI showing No Trend, so IF Bonds rally today(?) the Model will look to add to its current position in TBT on any pullback. 

BTW, Disney (DIS) reported a 58 percent drop in operating revenue from its theme parks and cruise line yesterday.  This contributed to an overall 37 percent decline in revenue.  The stock finished down 0.18 cents on a day when the Dow was up 218 points.  The reason I’m mentioning Disney today is because the Media Sector has been on the Weak List for weeks and DIS is the blue chip stock in the sector.  During the recent rally, DIS got as high as 112.70.  Yesterday the Mouse traded down to 98.86.  So, when you’re looking for stocks to short, make sure you check out which sectors are the weakest.  Once the current Wave B rally completes, that’s where I’ll be looking for my shorts.  On the other hand, if you plan to trade the current (potential) rally, you might want to pick stocks in the strongest sectors.  Once you know which sectors are the strongest, go to the Members Watch List and select the strongest stocks in that sector.

The Model continues to hold 40 shares of UCO, 600 shares of TBT, and 500 shares of GOLD with a cash balance of $76,147.  

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.

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

Market Signals for

05-07-2020

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.