Weekend Strategy Review April 18, 2021
Posted by OMS at April 18th, 2021
Since 29 January, the Dow has moved higher in five picture perfect waves. Friday’s 165 point gain to 33,200 appeared to complete final sub-wave 5 of the five wave sequence moving slightly beyond the 33,978 level I calculated as the theoretical level for a final top. In other words, the Bull Market that started in March 2009 may be complete …or nearly so from a wave count perspective. Friday’s volume on the NYSE was only 10 Billion shares, slightly higher than the previous week’s average, but still low. The A-D ratio was also low for a 165 point move, coming in at only 1.27 to 1. So, all the factors that are usually associated with a topping market are present. The only question that remains unanswered now is how the final top will develop. And that depends on the action on the two other major indexes, the S&P, and the NASDAQ.
The pattern on the S&P also appears complete. It too has made a five wave advance since 29 January. However, the final wave 5 of the pattern is less clear than what I’m seeing on the Dow. Specifically, the 30 March low I’m counting as a wave 4 was only 2 days, so IF the rally that followed was a wave 3 vs. wave five, the S&P should pull back this week to the 4,080 level before pushing to the 4,200 level to complete wave 5 of the pattern. This would increase the odds that the Dow will have a similar trading pattern, delaying its final top for about a week or so.
The pattern on the NASDAQ is even more suggestive of a delayed top, as its current rally appears to be associated with a wave 3 than a wave 5, which means that a wave 4 pullback will likely be followed by another rally to a new high. In other words, while the pattern on the Dow appears complete, the patterns on the S&P and NASDAQ are not, and this will likely lead to some choppy trading into months end before the final top is in.
Nothing has changed on the sentiment front as almost all the indicators I use to measure investor and advisor sentiment are at historically high levels. Based on this alone, …ignoring the patterns, I must believe that a final top is nearby.
Then there’s the indicators. As most of you know, I’m a pattern AND indicator guy. And right now, the indicators are still positive. The Market Timing Indicators on the Dow and NASDAQ remain Positive. The Scalp Trading Indicators on the DIA and NASDAQ-100 (QQQ) remain Positive. So, even though the patterns appear complete or nearly so, the indicators remain positive. Because of this IF the market begins to pull back early next week, I MUST assume that it’s related to wave 4 action, especially on the NASDAQ. On the other hand, IF the ST Indicators turn negative during the pullback, I’ll change my mind and adopt a more Bearish view. So, for now, with the patterns appearing to be in the final stages of a major topping process, it’s all about the indicators.
There was a small change in the A-D oscillator on Friday, so we need to be opn the lookout for a Big Move early next week.
The Dean’s List and The Tide are Positive.
The Sector Ratio remained at 24-0 Positive after Wednesday’s session. The top 5 strong sectors were Autos, Service, Semiconductors, Retail and Banks. 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: Last week was a mixed bag for our Top Stocks. WSM, the #1 ranked stock on 9 April, moved out of the Trend Zone on 7 April, so you couldn’t buy it. Good thing, as it pulled back from the mid-180s to close at 174.31 on Friday. Humm, so now you know why we only buy top stocks that are trending. Same for CLF, which was the #2 stock on 9 April. It too moved out of the Trend Zone on 7 April and traded sideways for the rest of the week. Same for the #3 stock, ENTG, …it just moved sideways. But #4, gold miner FNV gained 2 points to 137.12 while #5 HD gained 16 points to 328.08. The reason I’m focusing on these top 5 stocks today is to show you the Big difference between these stocks. The first three were NOT in the trend mode, so they either lost money (WSM) or traded sideways (CLS and ENTG). The two stocks that were in the Trend Mode (FNV and HD) made money.
So, the lesson to be learned here is what? When you’re looking to buy a stock from the MWL, ALWAYS make sure it’s in the Trend Mode. When a stock stops trending, its time to get out. All you will do with a top stock or any stock for that matter that is NOT trending is lose money or trade sideways. It NEVER pay$ to hold a stock when it is not in the Trend Mode. Never! All you’re doing is putting your money at risk. And with the patterns suggesting a major top is at hand, holding stocks that are not trending higher is a recipe for disaster.
Gold: The recent rally in gold to 1,777 has retraced 0.382 percent of the decline since 7 August 2020 high of 2,089. In other words, with the retracement complete, prices should begin to pull back next week. The depth of the pullback will be critical to golds performance during the next few months. Here’s the thing to watch: If the pullback moves lower than 1,693, it means that gold will likely fall to the 1,560 level. If gold does not pullback, it will likely trade to the 1,805 level. Either way, I’m still not a fan of gold here.
BTW, silver is also in the same boat. A few months ago, I had a target for silver near the 26+ level. Last week, silver hit 26.33 before closing at 26.01 on Friday. The level to watch on silver this week is 24.68. If prices fall below that level, silver will likely follow gold lower in the months ahead. The 24.68 level is just as critical to silver now as 1,693 is to gold. I do not want to own the metals below these levels.
Bonds: Same for Bonds. While the ST indicators on Bonds are currently Positive, the recent rally appears to be associated with wave 4 action. The rally was more of a zig-zag, and not impulsive as one would expect if a new bullish wave pattern were forming. Because of this, it’s likely that once the wave 4 correction completes, wave 5 down will take Bonds below their 18 March low. I’m still avoiding Bonds for now.
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
04-19-2021
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 07 Apr 2021 |
NASDAQ | POS | 01 Apr 2021 |
GOLD | POS | 14 Apr 2021 |
U.S. DOLLAR | NEG | 12 Apr 2021 |
BONDS | POS | 14 Apr 2021 |
CRUDE OIL | POS | 14 Apr 2021 |
DISCLAIMER
As always, the Professor never makes recommendations. The information is provided on an educational basis so you can have informed discussions with your financial advisors and/or accountants about your individual investment decisions.
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, Weekend Strategy Review