Professor’s Comments September 28, 2021
Posted by OMS at September 28th, 2021
Stocks were mixed yesterday. Large cap and small cap stocks on the Dow and Russell 2K were up; technology stocks on the NASDAQ were down. In my WSR, I discussed how the Dow could rally to the 35,000 level before Wave 2 up completes. Yesterday, the Dow got as high 35,061 before pulling back. So, Wave 2 up may be over. Wave 3 down should be next.
Yesterday’s early rally and late pullback formed a shooting start candlestick pattern on the Dow. These patterns are often seen at tops or major turning points. This pattern has appeared two other times since May and each time was followed by a significant decline. We’ll see if it happens this time. If the Dow does start down today to complete the pattern, the decline could be the start of a several thousand-point drop. Be careful. Again, if I have the wave count correct, the next wave down should be an impulsive wave 3 of 3 down.
Yesterday’s trading action on the NASDAQ also suggests that retracement Wave 2 up is over on that index. When the NDX reached the 15,356 level on 23 September, it filled the gap from 17 September’s close. In doing so, it completed a near perfect 0.61 Fibonacci retracement of Wave 1 down. Yesterday’s decline, which started with a large gap down, was likely the start of Wave 3 down on that index. It could be brutal. That’s because Wave 1 down was 880 points. Wave 3 down, depending on whether the decline is minor wave or Major Wave, should be a minimum of 1.5 to 2.5 times that, so it could be anywhere between 1,200 to 2,000 points. I’m going to use a decline of 1,500 points putting my initial target near the 13,700 level. This target is about 1,100 points below the Wave 1 low of 14,821 made on 20 September. In other words, I’m expecting technology stocks, especially the large FAANG type stocks, to get hit hard. For example, a technology stock, like Tesla (TSLA), which closed at 791 yesterday, could easily trade down to its 200-day moving average near 645 during the next move down.
The next decline on the S&P, which should also be a Wave 3 down, should drop that index well below its 20 September Wave 1 low of 4,306. Yesterday, the S&P closed at 4,443. BTW, its possible, but not likely, that the S&P could still have one smaller rally leg in it as yesterday’s trading completed what appears to be a small triangle. If a small rally does occur, it shouldn’t go beyond the 4,475 level. I would be very surprised to see this happen, given the Bearish patterns on the Dow and NASDAQ.
The Market Timing Indicators for the Dow, S&P remain Negative. The same indicators on the NASDAQ remain Neutral.
The Scalp Trading Indicators for the Dow (DIA) and S&P (SPY) remain Negative. The same indicators for the NASDAQ (QQQ) remain Neutral.
The Dean’s List and The Tide remain Neutral. Watch for these to change soon.
The Sector Ratio weakened to 18-6 Positive after yesterday’s session. The top five strong sectors were Energy (7), Banks (6), Leisure (3), Semiconductors (3), and Financial (2).
The five weakest sectors were Telecoms (-2), Household Products (-1), PharmaBio (-1), Computers (0) and Consumer Products (0).
Model Update: There were NO Changes to the Model. It is still 100 percent in cash.
Top Stocks: As I mentioned in the WSR, the Market Timing Indicator for Crude Oil turned positive on 15 September, and since then energy related stocks have been red hot. Yesterday, top energy stocks like CVI, DVN, CLR, and even NBR had a BIG day. NBR finished up 5 points! It opened at 92 and then shot to 98 before pulling back. The other top energy stocks also saw gains between 1 to 2.85 points. Once again, on a day when you’re unsure about what the indexes are doing, you can always find top stocks to trade on the MWL. Just pick a few and then watch the Scalp Trading Indicators on the short-term bars. If they give say so at the get go, you’re in your little own world. You don’t care that technology is going opposite the Dow confusing things. It doesn’t matter. You don’t care about what’s happening in China with Evergrande Bank…it’s not relevant to what you’re doing. All that matters is that you selected one of the strongest stocks on the planet to trade that day. It wouldn’t be at the top of the List if it wasn’t strong. When you saw the indicators turn positive on your…that matters. And when the indicators turned negative, you got out. Did you care that technology stocks on the NASDSQ were getting clobbered? NO! All you did was make money. At the end of the day, that’s the only thing that really matters.
Gold: Gold (GLD) rose 0.34 cents to 163.64. My Timing Indicators for gold remains on a negative signal and the VTI is still in the downtrend mode. That matters. Continue to watch for a signal change, then watch for gold related issues to appear on the Lists. If I’m right, both gold and the cryptos are in the process of completing a corrective Wave 2 down. You know what that means…. that impulsive Wave 3 up cold be just around the corner. Wait and watch for a signal change on both gold AND the cryptos. The next move up could be a good one.
BTW, I couldn’t add COIN to the MWL last night. I couldn’t get the data. Its funny, I have the data loaded on one computer, but I can’t get it on the computer I use to generate the Lists. I’ll be discussing the issue with Laurie, from AIQ today. She’s great at solving issues like this.
Bonds: Bonds are still Neutral. I’m still on the side lines waiting for the patterns to become clearer.
Cryptos: After falling on 20 September, Bitcoin has traded between 40,000 to 45,000. If Bitcoin can hold above the 40,000 level, it has a good chance to break out and move substantially higher. That’s a really good thing for Bitcoin miners like MARA and RIOT, or GBTC, the ETF for things mostly related to Bitcoin. Ethereum (ETH) is in the same boat. Since the beginning of September, ETH has pulled back from the 4,000 level and is now trading near 3,000. That’s a 25 percent pullback! But don’t look at the pullback as a negative. Think Hockey Sticks! The ‘stick’ on ETH started at the 1,700 level back in mid-July and rose to 4,000. That’s about 2,300 points…for the ‘stick’. So, IF I’m right and ETH starts to break out of its current ‘correction’, the next move projects to the 5,100 level. Like I said, pay attention to the cryptos. BTW, the ETF for Ethereum is ETHE. It’s in the data base for the Dean’s List. If you see it starting to move up…. pay attention. Like I said last week, ETH is becoming as one of the most useful cryptos as it emerges as the clear leader in Decentralized Finance (DeFi) and crypto contracts. The world of finance is changing before out eyes. It’s a MAJOR change. This is one area you might want to pay attention to, especially if/when the indicators turn positive.
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
09-28-2021
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 24 Sep 2021 |
NASDAQ | NEU | 23 Sep 2021 |
GOLD | NEG | 22 Sep 2021 |
U.S. DOLLAR | POS | 17 Sep 2021 |
BONDS | NEU | 23 Sep 2021 |
CRUDE OIL | POS | 15 Sep 2021 |
CRYPTO | NEG | 20 Sep 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.
Category: Professor's Comments