Professor’s Comments October 13, 2020
Posted by OMS at October 13th, 2020
The markets rallied as expected yesterday with technology stocks leading the way higher. The Dow finished with a gain of 251 points, closing at 28,838. The intraday high of 28,958 was its highest level since 2 September and about 241 points shy of the 3 September high of 29,199. The NASDAQ and S&P were up 296 and 57 points, respectively. Volume on the NYSE was moderate, coming in at 90 percent of its 10-day average. There were 190 new highs and 14 new lows
At this point, the markets are EXTREMELY overbought and could see a small pullback before they resume their push higher into Friday. Today, Amazon will start two days of ‘Prime Days’ and on Wednesday, Apple (AAPL) will introduce its latest iPhone. These events will likely focus even more attention on tech stocks pushing them even higher. As I mentioned on Friday, this is one of the reasons the Model chose to go long the NASDAQ-100, as the index is loaded with tech stocks. Last week, I mentioned that the next 10-14 days should be very positive. So, after yesterday’s rally, that window is about half over. In other words, I would be extremely cautious as we approach Friday as trading could be extremely volatile with options expiration.
It’s also still not clear if the current rally on the Dow is a Wave 2 or a Wave 5. If it’s a Wave 2, it could finish anywhere between current levels and the 3 September high of 29,199. This is why I MUST be cautious going into Friday. If it’s a Wave 5, the Dow should exceed the 3 September high and push on to the 30,300 level. At this point, I’m starting to lean towards the Wave 5 scenario because yesterday’s rally was impulsive, something one would expect within a wave 3 of a Wave 5 up. This small wave 3 should complete slightly above the 29,200 level before a small retracement wave 4 drops the Dow back to the 28,600 level followed by a final rally to the 30,000+.
The NASDAQ should have a similar pattern. Yesterday the index closed at 12,088. My target for the current rally leg is near the 12,300 level. Once this leg completes, the NASDAQ could fall back to the 11,800 level before pushing toward 12,800+. In other words, there could be a lot of volatility ahead as the overall market moves higher.
Because of the possibility that the overall pattern could still be a Wave 2 up, I still must remain somewhat cautious as the Dow approaches the September high. If the September high is exceeded, the odds of a rally to 30,000 or more increase significantly.
The Market Timing Indicators for the Major Indexes are Positive.
The Dean’s List and The Tide are Positive.
The Sector Ratio remained at 23-1 Positive after yesterday’s session. The top five strong sectors were Retail, Transportation, Leisure, Consumer Products, and Service. The only weak sector was Energy.
As discussed in yesterday’s mid-day Update, the Model sold half its position in QQQ at 295.70 and placed a stop on the remaining shares at 293.24. The Model took partial profits when it saw the QQQ extremely overbought and significant divergences starting to develop. If the rally in the Q’s continues, the Model will raise its stop as appropriate. The Model does NOT plan to ride out any corrective waves during this rally sequence, because IF the current wave is a Wave 2, the next Wave down could be impulse Wave 3 down.
Like I said earlier, I still believe the rally could last a few more days, as last week had two unfilled opening gaps…a clear sign of strength. But my data shows that once we get closer to Friday, the picture becomes much less clear.
The other reason for taking partial profit is because gold has moved to a Buy Signal, and I want to use some of the cash to establish a position in gold. If gold is entering a Wave 5 up as I expect, the rally could be explosive.
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
10-13-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 07 Oct 2020 |
NASDAQ | POS | 09 Oct 2020 |
GOLD | POS | 12 Oct 2020 |
U.S. DOLLAR | NEG | 09 Oct 2020 |
BONDS | NEG-T | 02 Oct 2020 |
CRUDE OIL | NEG | 23 Sep 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.
Category: Professor's Comments