Professor’s Comments November 17, 2020

Posted by OMS  at November 17th, 2020

All three major indexes rallied hard on Monday, maintaining the Bull’s upper hand I talked about in my WSR.  The Dow finished with a gain of 471 points, closing at 29,950.   The intraday high slightly exceeded last Monday’s high of 29,934 which is Bullish going forward.  The NASDAQ and SPX also had large rallies, gaining 95 and 42 points respectively, however they did not exceed last Monday’s high.  Volume on the NYSE was moderate, coming in at 100 percent of its 10-day average.  There were 198 new highs and only 3 new lows.  While yesterday’s volume and breadth were stronger than what occurred last Monday, this supports, but doesn’t guarantee more rally.

Here’s the thing…. While it’s still likely that the Dow will continue to rally toward my pre-election target of 30,000+, the fact that the S&P and NASDAQ did not make new highs yesterday creates an inter market divergence which is Bearish. 

In the WSR, I talked about how the ‘Blade’ of a negative Hockey Stick Pattern is developing off last Monday’s large ‘Stick’.  That pattern is still alive and well for the S&P and NASDAQ.   Nothing changed after yesterday’s large rally.  However, IF this pattern, which is essentially a wave 2 rally, is to remain valid, the markets MUST begin to trade lower today, and continue lower for the rest of the week.  If not, the Dow will likely trade up to the 30,300+/- level to complete wave 5 up of Wave 5 up of Major Wave 5 up.  The 30,300 level is obtained by drawing a trend line through the June and September highs.  The trend line is the upper line of a parallel channel that has been developing since May.  So, it’s pretty simple…. the markets either begin to fall today or they will likely chop higher for the next week or so to meet the upper trend line. If they begin to fall, the recent highs we’ve seen during the past week will likely mark the end of the Bull Market, an advance that started in March 2009.

The key support levels I talked about in the WSR remain valid.  They are 28,902 on the Dow, 3,513 on the S&P, and 11,666 on the NASDAQ. A break of these levels would mean that prices are headed for the prior wave 4 low, which for the Dow is 30 October low of 26,143.  As long as these key support levels hold, prices will likely chop higher.  

The Market Timing Indicators for the Major Indexes remain Positive. 

The Scalp Trading Indicators also remain Positive, but the negative divergence I mentioned last week continues to develop.  Again, this divergence should be taken as a warning.  The volume indicator on the NASDAQ-100 (QQQ) is still hovering below the 15 level which if broken would tend to signal more rally. On the other hand, IF this indicator starts to move down with a diverging momentum indicator, it will generate a Sell Signal.  Student should continue to watch the Daily volume indicator on the QQQ in the days ahead.  The NASDAQ-100 continues to be the weakest index.  If it strengthens, the other indexes should have no problem moving higher.  What happens to the Q’s in the days ahead will be critical to determining the next direction of the overall market.

The Dean’s List and The Tide remain Positive.

The Sector Ratio stayed at 24-0 Positive after yesterday’s session.   The top 5 strong sectors were Retail, Real Estate, Semiconductors, Banks, and Media. There were NO weak sectors. 

Gold (GLD) was flat yesterday, losing 0.01 cents at 177.15.  I’m still avoiding gold.

Bonds:  I saw an interesting article yesterday, written by Jay Kaeppel, that compared bond prices to the price of EWJ, the ETF for Japanese stocks.  Basically, the article talked about an inverse relationship between EWJ and TMF, the 20+ year ETF for Bonds.  The author’s research used 3 and 5 week moving averages on EWJ to generate Buy/Sell Signals on Bonds. Right now, my Market Timing Signal for Bonds is Neutral, so it will be interesting to watch what happens if the signal on Bonds changes direction.  I noticed last night that the ST indicator on TMF turned negative.  The same indicators on EWJ are positive.  Interesting. I plan to do my own research on this potential EWJ-Bond relationship in the days ahead.

There were NO Changes to the Model after yesterday’s session.  The Model remains 100 percent in cash.  The Model will likely remain in cash until the conflicting patterns are resolved.  

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

11-17-2020

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.