Weekend Strategy Review April 11, 2021

Posted by OMS  at April 11th, 2021

In Thursday’s Comments I discussed how the Dow needed one more rally above the 33,617 level to complete its five wave pattern to a final top.  A good part of that rally occurred on Friday with the Dow gaining 297 points to close at 33,800.  So, the question for this weekend is has the top finally been reached?

One of the things I did when I made my projections from the wave 4 bottom on 25 March was to measure the length of the ‘sticks’ that were developing in the five wave upward pattern.  From its minor wave 2 low of 32,989 to the end of minor wave 3 up, the stick was about 628 points.  When I added this to the wave 4 low of 33,350 it gave me a target of 33,978.   So, at 33,800, it’s possible that the Dow could have a bit more upside to go before the final top is in. 

Friday’s rally was accomplished on another weak volume day. With less than 9 Billion shares traded, it was the slowest trading day of the year.  It was also the sixth consecutive day that volume decreased.  Think about this…the Dow gained almost 300 points on Friday when the Advance -Decline ratio was only 1.2 to 1.  The Up-Down volume ratio was even weaker with more volume on the downside than up volume.  This is incredible!  So even though its possible that we could see the Dow push slightly higher next week, the combination of weak breadth and volume are not something you want to see if you’re still Bullish.

The other thing I’m concerned about is the EXTREME levels investor optimism that are accompanying the current rally in equity prices.  I’ve been talking about this for the past few months now, as the market continued to push higher.  This week, the S&P Daily Sentiment ratio moved to 90 percent Bulls, which is its highest reading in 7 ½ months.  In Thursday’s Comments I talked about the high levels of the Investment Advisors’ Sentiment which now exceeds 3.64 bullish advisors to every bearish advisor.  That’s extreme.  The thing about EXTREME levels of investor sentiment is that while they usually do not mark the exact top, they always occur in the final wave of a major Bull run up.  So, with the patterns suggesting the major five wave pattern of the Bull is nearing completion, seeing EXTREME levels of investor optimism is something you would expect.  If you put a gun to my head and asked me to bet what will happen this week, I’d say we get a small pullback early in the week followed by a final rally to 33,978.  A decline below 33,100 now would tend to confirm that final wave 5 up is complete.   

The Market Timing Indicators on the Dow and NASDAQ remain Positive. The Scalp Trading Indicators on the DIA and NASDAQ-100 (QQQ) remain Positive.

The Dean’s List remains Positive while The Tide remains Neutral.  A negative Up-Down oscillator is keeping The Tide from being positive.

The Sector Ratio remained at 24-0 Positive after Friday’s session. The top 5 strong sectors were Autos, Banks, Transportation, Semiconductors and Service.  There were no weak sectors.  Continue to look for changes to the Sector Ratio as the week progresses.

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

Top Stocks:  Since the ST volume ‘trigger’ on the Dow was activated on 24 March, all Top 5 Stocks on the MWL have been winners.  Not big winners like we saw in January and February, where several of the Top Stocks skyrocketed higher, but winners.  The impressive thing was that there were no losers!  This is something that you want to see if you’re constructing a portfolio of stocks using the Top Stock Rotation Strategy.  Yeah, we all would like to have a portfolio of stocks that go from 58 to 133, like NBR did in February – early March, or what DDD did by going from 20 to 56 in January, but that was crazy stuff.  Now, as the market begins to roll over, where more stocks are declining than advancing, the larger gains are likely to be made on the short side.  The thing I wanted to point out to my students this weekend is that even in these times of uncertainty, the Top Stock Rotation Strategy continues to perform well. 

For example, when the ‘trigger’ on the Dow was activated on 24 March, WSM was the #1 ranked stock on the MWL trading at 165.  It got as high as 186. That’s almost a 13 percent profit in less than three weeks!   On Friday, the stock closed at 183.22.  The reason I mention WSM is because its momentum indicator moved out of the Trend Zone on Friday, generating a Sell Signal.  That’s what has been happening with many of the Top Stocks.  They had their pop and are now generating Sell Signals.  Another top stock, ADS, went from 106 to 121.28 before it signaled that it was no longer trending.  So, as I’ve been saying, when the Top Stocks, some of the strongest stocks on the planet, are starting to move out of the Trend Zone, it’s time to pay attention.  The Dow may not be at its actual top yet, but the action in the top stocks is telling me we’re getting close.

Gold:  Still no changes here.  GLD pulled back 1.24 yesterday to 163.27. pattern continues to suggest a corrective wave 4.  The ST volume indicator on GLD turned negative on Friday, putting GLD on a Neutral Signal. I’m still very much concerned that the current rally in gold is a fake out correction, and that gold could still fall 100 points or more before a final bottom is in.

Bonds:  The ST indicators on Bonds remain negative.  Because of this, I’m still avoiding Bonds for now.

Have a great weekend,

That’s what I’m doing.

h

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

04-12-2021

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