Professor’s Comments Update 2/13/20
Posted by OMS at February 13th, 2020
The markets gapped higher and staged a strong rally yesterday, moving beyond the critical 29,391 level that defined its next move. The Dow finished with a gain of 275 points, closing at 29,551. The NASDAQ was up 87 points. There were 270 new highs and 35 new lows. The strong number of new highs was enough to turn The Tide back to positive.
Yesterday’s rally appeared to be impulsive wave 3 of a five-wave sequence for final Wave 5 up. By breaking above the 29,391 level, it defined the down-up trading action earlier in the week as waves 1 up and 2 down of the five-wave sequence. So now once wave 3 up completes, there should be a corrective wave down (wave 4) and a final wave 5 up.
Here’s the thing: Yesterday’s rally was triggered by an apparent lessening in the number of cases of the corona virus being reported China. I wouldn’t get too excited about this as the Chinese government is not a very reliable source that only reports what you want to hear. Simply put, I don’t believe they’re telling the truth and the numbers are likely going to increase again in the weeks ahead. This will cause increased volatility in the markets as they respond to the new numbers.
But here’s the important thing for the short term. Given that yesterday’s strong rally appeared to be wave 3 of the sequence, the market is now overbought, so we need to expect some type of retracement wave. The pullback could be either a small wave 4 within wave 3 up or it could be a larger wave 4. At this point we don’t know. But the reason this is important is because IF it’s only a small wave 4 within wave 3 up, it means the Dow will likely push higher, closer to the 30,000 level before all five waves are complete. On the other hand, if the pullback is larger, maybe > 300 points, then it’s likely wave 5 up will complete closer to the 29,600 level. Remember, I mentioned the 29,600 level last week, mostly because one of the Bullish scenarios I have has the Dow completing near that level. What I’m telling you is that the patterns suggest the Dow will top somewhere between 29,600 and just under 30,000.
This brings up the question of how to trade the current market? Keep in mind that if you want to trade the last few points of the rally, you need to think about volatility. Remember, last week when the news broke that the virus was spreading, the Dow dropped over 600 points in one day! I mention this because yesterday, AAII reported that their portfolio was all but 13.8 percent in cash. In other words, their investors are almost all in. Hmmm? That’s the second lowest percentage of cash being held since the Dotcom bubble in January- March 2000. Yikes!!! So, IF things begin to head south and Mutual Fund investors want to get out of their equity positions, there’s going to be massive selling because the Funds don’t have a lot of cash on hand to pay their investors. For all practicable purposes, 13.8 percent cash is not enough to preclude a significant decline IF everybody decides to head for the exit.
The Sector Ratio increased to 13-11 Positive after yesterday’s session, so the Sectors are still hanging back. I’m still OK with being on the sidelines.
The two things I’m watching closely now are Crude Oil and gold. Yesterday Crude Oil popped from EXTREME oversold conditions. The pop was enough to turn the timing indicators on UCO Neutral. I want to see them turn positive before I start buying shares for the Model. Same for gold, but just the opposite. Gold is starting to look weak. Yesterday, my market timing indicator for Silver turned negative, so gold could be ready to follow silver south. If the timing indicators turn negative, I will likely buy a few shares of an inverse gold ETF. But not now.
The Model remains 100 percent in cash.
That’s what I’m doing,
h
Market Signals for
02-13-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 05 Feb 2020 |
NASDAQ | POS | 04 Feb 2020 |
GOLD | POS | 17 Jan 2020 |
U.S. DOLLAR | POS | 31 Jan 2020 |
BONDS | POS | 07 Feb 2020 |
CRUDE OIL | NEU | 12 Feb 2020 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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Category: Professor's Comments