Professor’s Comments November 19, 2020

Posted by OMS  at November 19th, 2020

The market started its pullback yesterday.  The Dow finished with a loss of 344 points, closing at 29,438.   The decline was the Big Move predicted by Tuesday’s small change signal in the A-D oscillator. The NASDAQ and SPX also finished lower, dropping 98 and 42 points, respectively.  Volume on the NYSE was moderate, coming in at 98 percent of its 10-day average.  There were 162 new highs and 3 new lows. 

Yesterday’s decline, on modest breadth and volume, moved the Market Timing indicators on the Dow and NASDAQ to Neutral.  At this point, I still can’t tell if the decline was the start of something larger (a major wave 3 down) or a slight pullback (a wave 2 within a 5-wave sequence to complete final Wave ‘B’ up.  Either scenario is possible.   However, if the Dow stays above the key support number I mentioned in Tuesday’s Comments (28,902) I MUST still go with the Bullish Scenario.   

Under that scenario, the Dow will likely continue to pullback today toward the 29,200+/- level to complete wave 2 down before rallying again.  Technically, it’s possible that the Dow could fall slightly below 28,902 and still be a wave 2, so the analysis is a bit tricky now.  But if 28,902 is broken in a big way, the odds would shift in favor of the Bearish scenario.

Here’s the thing…. the rally that we’ve been seeing prior to yesterday’s decline has been accompanied by an extraordinarily strong TICK.  Tuesday was the third consecutive day the TICK was over 50,000.  That’s EXTREMELY Bullish!  It is not only Bullish for the short-term, its usually Bullish for the intermediate term as well.   So even though the market pulled back yesterday, the scenario that best fits yesterday’s pullback is a wave 2.  If this the case, then once wave 2 completes, probably somewhere between 28,800 and 29,300, the Dow will begin a wave 3 rally that will carry it back above the 30,000 level, with 30,300 now a strong possibility.

On the other hand, if it’s NOT a wave 2 decline within the Bullish five wave sequence, then it’s the start of Wave 3 down.  This wave …again the odds are still low for this scenario, should test the prior wave 4 low, which for the Dow is 30 October low of 26,143, with even lower prices possible.  Again, at this point, I must give this scenario low odds, but just realize that the odds will change drastically with a significant break of 28,902 and / or a change in the indicators.  If 28,902 holds and the indicators turn positive again, prices will likely push higher.

BTW, there’s one other thing that troubles me about yesterday’s action. It was noticeable on the S&P, not the Dow. It had to do with the fact that yesterday’s pullback was lower than the high made on 11 November. That shouldn’t have happened if the rally since 10 November was part of an impulsive rally to new highs. In terms of Elliott Waves, the pullback violated a cardinal rule for a retracement wave which says it shouldn’t overlap the previous wave 1 rally. Yesterday’s decline did, so for the broader S&P, the short-term trend MUST be considered down. So, like I said in Tuesday’s Comments, there’s lots of inter market divergence occurring now which is usually Bearish.

The Market Timing Indicators for the Major Indexes have moved to Neutral. 

The Scalp Trading Indicators on the Dow (DIA) remain Positive, but the Daily volume indicator is close to turning negative. The volume indicator on the NASDAQ-100 (QQQ) has turned negative but the momentum is still positive.   Students should continue to watch the Daily volume indicator on the QQQ in the days ahead.  That’s because the NASDAQ remains 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.  BTW, IF the volume indicator on the Q’s turns positive, it will be my signal to re-enter a position in the Q’s for the Model.

The Dean’s List and The Tide remain Positive.

The Sector Ratio continues to remain strong, coming in at 24-0 Positive last night.   The top 5 strong sectors were Retail, Media, Real Estate, Semiconductors, and Leisure. There were NO weak sectors. 

Gold (GLD) pulled back yesterday, losing 1.01 points to 175.49.  I’m still avoiding gold.  With negative indicators and an unclear pattern that suggests lower prices, gold (the metal) could fall to the 1,835 level with 1,765 possible.  Gold closed at 1,871 yesterday.

BTW, the pattern on silver is a lot clearer than the one on gold.  The ‘Blade’ of a negative Hockey Stick pattern has been forming on SLV, an ETF for silver.  This ‘Blade’ has a lower support line near the 21.5 level.  A break of this support line would project a decline down to the 16-16.5 level.   This is another reason I’m avoiding gold for now.

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

11-19-2020

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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