Professor’s Comments October 21, 2021

Posted by OMS  at October 21st, 2021

The indexes were mixed again yesterday with the Dow making a new intraday high awhile technology stocks on the NASDAQ fell slightly. The Dow finished with a gain of 151 points, closing at 35,609. The S&P was up 17 points; the NASDAQ was down 7 points. Volume on the NYSE was moderate, coming in at 96 percent of its 10-day moving average. There were 156 new highs and 17 new lows.

In last week’s Comments I talked about how by breaking above 34,800, the Dow could no longer be considered a Wave 2 in a Bear Market. The complex double zig-zag that developed from 2 September into 4 October MUST now be labeled a Wave 4 which increased the likelihood that the Dow would likely test and exceed its 16 August high. That happened yesterday when the Dow reached an intraday high of 35,669.69. So now we know that Wave 5 up in the old Bull Market is still in progress. What we don’t know is where Wave 5 up will end. It’s possible that the Dow topped yesterday after making the intraday high. The reason I say this is because the only requirement for Wave 5 to be complete is that it must exceed Wave 3 (the 16 August high) and do it in five waves. The first part of that requirement happened yesterday, but because of the straight up nature of the rally, it’s difficult to tell if it was accomplished in five waves.

When I look at a 60-minute chart of the Dow, I can count three clear waves off the 6 October low of 33,854. So, it’s possible that the Dow will start a small wave 4 decline today which will be followed by another rally leg (wave 5 of Wave 5 up).  This doesn’t have to happen, as I could be wrong in counting the initial waves of the pattern when the first zig-zag started. In other words, yesterday’s rally could have been wave 5 of Wave 5 up instead of a wave 3.  So, if the Dow didn’t top yesterday, the final top should occur within the next week to 10 days.

BTW, the S&P did NOT make a new high yesterday, so its current rally could still be considered a Wave 2. If this is the case, Wave 3 down could start at any time.

The NASDAQ is in the same boat as the S&P. Because it has not exceeded its early September high, it’s likely the recent rally is still a retracement Wave 2. If this is the case, yesterday’s high of 15,457 could have completed Wave 2 up with Wave 3 down next.

Bottom Line: Two of the three major indexes (S&P and NASDAQ) still appear to be in Wave 2 retracement rallies that are close to completion. So, any IMPULSIVE move down in the S&P or NASDAQ in next few days could mark the beginning of Wave 3 down. Watch the S&P and the NASDAQ for clues as to the Dow’s next major move. If the impulsive moves turn the timing indicators negative, the odds are high that Wave 3 down is underway.

I had a long discussion about wave counts with my son Brian yesterday. Brian hates wave counts because he believes they are not reliable and always seem to morph into other wave counts and patterns. He thinks I should not even talk about them. Brian has a point, and its well taken. But as I tell him, I only use wave counts as a roadmap for a potential move. I know going in that any pattern based on Elliot Waves is not exact and can morph into other patterns, and because of this, I use indicators. The Market Timing Indicators on the Dow turned positive on 6 October marking the start of the current rally. That’s why in Tuesday’s Comments, I said I’m just trading the cryptos, waiting for the market to roll over. I’m just waiting for the timing indicators to turn negative. When they do, I’ll start shorting. I believe this could happen within the next week to 10 days. Meanwhile I’ll continue to trade the cryptos.

The Market Timing Indicators for the Dow (DIA), S&P (SPY) and NASDAQ (QQQ) are Positive.

The Scalp Trading Indicators for the Dow (DIA), S&P (SPY), and NASDAQ (QQQ) are also Positive.

The Dean’s List and The Tide are Positive.

The Sector Ratio strengthened to 19-5 Positive after yesterday’s session. The top five strong sectors were Energy (7), Banks (4), Semiconductors (3), Healthcare (3), and Service (3).

The five weakest sectors were PharmaBio (-1), Household Products (-1), Media (-1), Retail (-1) and Technology (-1).

Model Update:   There were NO Changes to the Model. It is still 100 percent in cash.

Top Stocks:  Top Stock Marathon Digital (MARA) had another strong day yesterday, gaining 2.57 points before pulling back. Once again, my ‘arrows’ put me into the trade at the open and took me out at 11am, just a few ticks off the day’s high. The same thing happened with GBTC, the Bitcoin ETF, which had been on a Buy Signal from the previous day. Once again, the ‘arrows’ took me out of the trade at 12:45, again, just a few ticks off the day’s highs. You’re gonna love the arrows.

As I mentioned previously, the cryptos (Bitcoin) appear to be a Wave 5 up. And like I said, IF it’s a Wave 5, Bitcoin should surpass its old Wave 3 high. This is the reason I’m trading the cryptos. I see MARA and GBTC at the top of the MWL and DL and have a Wave 5 pattern (roadmap) that suggests higher prices. I also have ‘arrows’ to tell me when to enter and exit a trade. So, for me it was a no brainer. I also saw lots of green bars on my momentum indicators telling me to remain positive. BTW, yesterday after I exited the trade on MARA, the indicators on my screen turned Red, so today I’ll have to wait for another Green arrow before going long again. Pretty easy.

Again, look for Dave’s email with details on my Update Class next week. Do NOT miss this Class!

Gold:  Gold (GLD) rose yesterday, but it’s still not clear what the next move in the metal will be. There’s a possibility that gold is forming a triangle since its early July top. If this is the case, gold’s next move should be higher. For now, it’s too early to tell. With neutral indicators, I’m on the side lines.

Same for Bonds…. I’m on the side lines.

With the cryptos still at the top of my Lists, all I’m doing now is trading GBTC, ETHE, and the miners (mostly MARA and RIOT) as I wait for the market to roll over.

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

10-21-2021

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.