Professor’s Comments October 27, 2020
Posted by OMS at October 27th, 2020
The markets gapped lower at Monday’s open and broke below the support levels mentioned in the WSR ending the day with significant losses. The Dow was down 966 points at one point but a late day rally pared the loss to 640 points, with the close at 27,685. The NASDAQ and S&P were down 189 and 64 points, respectively. Volume on the NYSE was moderate, coming in at 100 percent of its 10-day average. There were 14 new highs and 45 new lows.
Monday’s decline was significant in terms of breadth and volume. There were seven stocks down for every one that was up on the NYSE with 91 percent of the volume occurring on the downside. The selling pressure was the strongest since late June. My Scalp Trading Volume indicator turned negative on 14 October on the Q’s causing the Model to exit its trade. It turned negative on 15 October on the Dow (DIA), warning that something like yesterday’s downdraft could occur. You NEVER want to be on the wrong side of that indicator.
From a technical perspective, yesterday’s decline appeared to be part of wave 3 down within a Wave 3 down that started from the 16 October high of 28,843. Waves I down and 2 up of the sequence started from the 12 October high of 28,958. So, IF yesterday’s decline was part of Wave 3 down, the pattern suggests that stocks will likely decline for the next week or so, as the middle waves of a Wave 3 decline are usually the strongest in a Bear Market. A re-test of the 24 September low of 26,537 is the next likely target. A close above last Friday’s high of 28,437 would cause me to re-assess this negative outlook.
BTW, yesterday’s decline was a perfect 0.63 Fibonacci retracement of the Wave 1 rally that started on 24 September into the 12 October high. The reason I mention this is because stocks often bounce after 0.63 percent retracement. My VTI indicator is currently at 53.14 (NO TREND) with the 2-period RSI showing an EXTREMELY oversold reading of 6.43, so stocks could see some type of bounce today. Just remember that the odds suggest any bounce will likely be followed by more decline. So, with the Dow currently at 27,685, IF we get a 50-100+ point bounce, that might be a nice entry point to ride another 1,000 point decline down to the September low.
My short-term target for the NASDAQ is near the 11,290 level. This level results from a gap on 6 October, which is always an obvious target. Also, there are several gaps near this level, between 11,290 down to 11,151, so each one should be filled as the NASDAQ-100 works its way lower in wave 3 of Wave 3 down. My longer-term target for the NASDAQ remains near the 21 September low of 10,678 with even lower prices likely. Like I said last week, it looks like waves 1 and 2 of the new Bear market are in for the techs, so any analysis of the NDX MUST take this into account. If it looks like a duck, quacks and waddles like a duck, it could be a DUCK!
The Market Timing Indicators for the Major Indexes are Negative.
The Dean’s List is Negative. The Tide remains Neutral. The lone holdout is the Up-Down indicator which remains positive.
The Daily Scalp Trading Indicators on the Dow (DIA) and QQQ remain mixed. The volume indicators are negative while the momentum is positive but heading down. Again, when the Scalp Trading Indicators on the Daily Charts are mixed, students should expect volatile back and forth trading. This is a period when you will get frustrated by the daily whip saws in the market.
The Sector Ratio weakened to 18-6 Positive after yesterday’s session. The top five strong sectors were Transportation, Retail, Autos, Utilities and Cap Goods. The top five weak sectors were Energy, Media, FoodDrugs, Computers and Foods.
There were NO Changes to the Model after yesterday’s session. The Model remains mostly in cash with a small portion of its portfolio (about 20 percent) in gold.
BTW, the Scalp Trading (ST) Indicators on Apple (AAPL) remain mixed. The volume indicator remains negative with a momentum indicator is still positive but close to turning negative. Continue to watch Apple (AAPL) as the week progresses. My target for the stock remains in the low 90s. The same indicators on the other FAANG stocks remain mixed. AMZN, FB, and Alphabet (GOOG) remain positive. NFLX is negative. It should be interesting to watch how the FAANGs perform during the next few weeks. Remember, the ST indicators on the NASDAQ-100, the index that contains all the FAANG stocks, is still mixed. So. IF the NDX is going to continue lower, one would expect the FAANGs to follow. So far only NFLX is the only FAANG stock showing negative ST indicators. It’s why I’m watching AAPL.
One more thing…. take some time today to look at NFLX and notice what happened to the stock after the ST volume trading indicator turned negative on 16 October with the stock trading at 530. Hmmm? Yesterday NFLX hit a low of 479.9. Like I said, you NEVER want to be in a stock (or the market) once the ST volume indicator turns negative. A negative volume indicator is my sell signal if I’m long a stock. Bad things can and do happen to stocks with negative volume indicators, especially if Wave 3 down in a Bear Market is starting. Protect yourself!
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
10-27-2020
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 23 Oct 2020 |
NASDAQ | NEG | 23 Oct 2020 |
GOLD | NEU | 26 Oct 2020 |
U.S. DOLLAR | NEG | 09 Oct 2020 |
BONDS | NEG | 19 Oct 2020 |
CRUDE OIL | NEU | 15 Oct 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