Professor’s Comments October 30, 2020
Posted by OMS at October 30th, 2020
Yesterday, the Dow traded down to a low of 26,291 before rallying to close at 26,659. The early decline appeared to be the completion of wave 3 down within a five wave sequence for Major Wave B down. Yesterday’s late rally back above 26,500 could be considered part or all of a small wave 4 up. If this is the case, once wave 4 up completes, the Dow should make one more attempt to test yesterday’s low before beginning to move significantly higher.
Again, this is the Bullish Scenario I wrote about yesterday that will likely occur IF the Republicans win on Tuesday.
On the other hand, IF…and it’s a BIG IF, the White House and Senate change hands on Tuesday, it’s likely that the Dow will close below the 26,500 level in the days ahead which will likely lead to significantly lower prices. The area surrounding 26,500 on the Dow is EXTEMELY important because not only was it the target for the Ending Diagonal, it’s also slightly below the 200 day moving average (26,786). So right now, the Dow has technically entered a down trend…trading below the 200. However, the good news is that the area where an Ending Diagonal pattern started is usually solid support. It is not unusual for an index to test and re-test the 200 several times during a major Bull Run, before the next leg of the Bull resumes. But with negative indicators on the cockpit, a negative Sector Ratio, and the Dow already trading below its 200, students MUST be careful with their equity holdings now, as almost any bad news in the days ahead could send stocks reeling.
Last night the Sector Ratio improved to 9-15 Negative, from its previous reading of 4-20 Negative. So that’s a slight positive. Yesterday’s small rally in the Dow was likely helped by the government’s announcement that the GDP grew at an annualized rate of 33 percent. This was fabulous news and the Dow should have exploded higher. But it didn’t, which is a reason for caution. Then after the close, Apple fell over 4 percent after announcing a 16 percent decline in iPhone sales. Amazon also announced earnings last nigh that blew away expectations, but the stock still fell almost 2 percent. Facebook announced decent earnings, but its stock is down about 6 points in pre-market trading. So it appears that earnings and GDP numbers don’t seem matter now that we’re within days of the election. Students should understand that the earning and GDP numbers I mentioned above are REALLY GOOD numbers….the kind that should help propel the market higher.
But as I said yesterday, we are on the doorstep of an election that will have major consequences and right now, everything is on hold. The patterns continue to suggest that the results of Tuesday’s election will determine the next major direction of the market, not earnings or GDP numbers. So please be careful with your trading. Pay attention to the ST indicators!
That’s what I’m doing,
h
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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Category: Professor's Comments