Professor’s Comments October 15, 2020
Posted by OMS at October 15th, 2020
The markets pulled back yesterday on news that the latest efforts to produce a stimulus package had stalled. The Dow finished with a loss of 165 points, closing at 28,514. The NASDAQ and S&P were down 95 and 23 points, respectively. Volume on the NYSE was moderate, coming in at 103 percent of its 10-day average. There were 88 new highs and 19 new lows
The decline we’ve seen for the past two days appears to be part of a wave 4 down within a five wave sequence for Wave 3 up. If this analysis is correct, the Dow’s current decline should stop near the 28,400 level, and then begin to rally back to the 3 September high to complete wave 5 of Wave 3 up. Then once Wave 3 up completes, there should be another a small decline for Wave 4 back down to the 28,600 level followed by a final rally to the 30,000+.
The NASDAQ, which appears to have a slightly different wave structure, could have reached the top of its Wave 1 up. It might have another few points of rally left if yesterday’s pullback was a small corrective wave 4 down. If not, a Wave 2 decline toward 11,800 could be starting. Yesterday’s news about Facebook and Twitter locking down the negative commentary on Joe Biden and his son, Hunter, could put pressure on both stocks and the tech heavy NASDAQ. So, with tomorrow being options expiration Friday, trading in the tech sector could be extremely volatile.
It’s 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. If it’s a Wave 5, the Dow should exceed the 3 September high, then pull back slightly and then push on toward the 30,300 level. However, students should understand that if we’re dealing with a Wave 2 up, the rallies on both the Dow and NASDAQ could be over. At this point, there’s no way to tell from the patterns, so we MUST rely on the indicators.
As of last night, the Market Timing Indicators for the Major Indexes are still Positive.
The Dean’s List and The Tide are also 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 was stopped out of its remaining shares of QQQ at 293.24. The stop was placed after the Model took partial profits and saw overbought conditions and significant divergences starting to develop. The Model is now 100 percent in cash. The Model will remain on the sidelines until the indicators turn positive. If the current decline is a wave 4 retracement, the re-entry could take place within the next 2-3 days. Last Friday’s high on the QQQ of 285.9 was followed by a gap opening on Monday, so the Q’s could trade down to 285.9 to ‘close the window’ before moving higher. Gap lows are always possible targets. The equivalent gap low on the NASDAQ was at 11,718.
Gold moved back to a Neutral signal after yesterday’s session. If the timing indicators on GLD turn positive, the Model will use some its cash to buy a trial position. Gold, the metal, appears close to entering a Wave 5 up. However, its Wave 4 triangle could use one more small decline to complete the pattern. This decline could take GLD down below the 175 level. If this happens, a move back above 180 would suggest that Wave 5 up is underway.
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
10-15-2020
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 | NEU | 14 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