Weekend Strategy Review April 4, 2021
Posted by OMS at April 4th, 2021
The markets rose as expected on Thursday with the S&P rising above its old high of 3394 to close at 4020. In Thursday’s early Comments I mentioned that the S&P would likely make a small rally above the 4001 level to complete wave 5 of 5 in the sequence, so now that this has happened, the markets are poised to start their decline next week.
From a technical perspective, Thursday’s rally in the Dow also appeared to complete a nine wave impulsive advance, something often seen in Ending Diagonal patterns, just before a major trend change. A close below the 25 March low of 32,072 would confirm that the top is in. A close below 32,072 would also suggest the Dow is headed for a retest of the 29 January low of 29,856.
One of the things I looked at on Thursday was the incredible amount of money that U.S households are putting into the stock market. As of last week, the number stood at 34.4 percent of their total assets. This number is the highest level ever, driven by speculative fever and low bond yields. The thing about this record high number is that it exceeds the peak highs of 1966 and 2000 that occurred just before the Go-Go Crash and the dot.com bubble. In other words, U.S. household are now all in the stock market. If we are to learn anything from history, it’s that this type of speculative frenzy does not end well.
During the past few months, I’ve made several comments about the valuations of equities being at EXTREME highs. On Friday, the S&P price-sales ratio set an all-time high of 2.98. I wonder if the people buying stocks on Friday knew that they were paying almost 3 bucks for each dollar of sales. That’s rich!! It’s also about 26-27 percent more than they were paying back in March 2000, just before S&P dropped 51 percent. So, no Virginia, stocks are NOT cheap! The people who bought on Friday were paying top dollar! The fear of missing out (FOMO), especially in new investors, never ceases to amaze me.
BTW, a few weeks ago I mentioned that A-Rod had introduced his new SPAC, an IPO that basically said ‘just give me your money’. Well, last week Bloomberg reported that most new SPAC IPOs aren’t doing so well….that most are losing money. This is happening at a time when equity prices are making all time highs. Apparently A-Rod’s SPAC is one of the IPOs that Bloomberg was talking about as his is still selling below its initial offering price. In other words, everyone who just gave A-Rod their money in a ‘trust me’ venture is now losing money. Hmmm? I mention this because the number of new SPACs are another indication of the EXTREME amount of speculation currently going on in the market. Remember, last year, the number of new SPAC or ‘Trust me’ IPOs, was about 10 per month…a ridiculous number. Now the number is over 100 per month. That’s just insane. Never give anyone your hard earned money on a ‘trust me’ venture. Never!
Anyhow, now that the S&P has made its new high in the Fibonacci cluster window, I’ll be watching for the market to start changing direction. The turn usually starts within 2-3 days of the middle of the window, so Monday-Tuesday will be important days.
The Market Timing Indicators on the Dow remained Neutral on Friday as the volume indicator stayed negative. The Timing Indicators on the NASDAQ are also Neutral. The Scalp Trading Indicators on the DIA remain Positive. The same indicators on the NASDAQ-100 (QQQ) have turned Positive.
The Dean’s List remains positive while The Tide has turned Neutral. The reason for the change in Tide is because the A-D oscillator turned positive after Thursday’s session.
The Sector Ratio weakened slightly to 23-1 Positive after Thursday’s session. The top 5 strong sectors were Retail, Service, Energy, Banks, and Semiconductors. The one weak sector was PharmaBio. 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. Remember, the Model is based on the NASDAQ-100 (QQQ) and right now the Qs are on a Sell Signal.
Gold: Thursday was a strong day for gold as GLD rose 2.02 points to close at 161.98. It’s still too early to tell if gold has bottomed, but the bounce was encouraging as it comes after testing support at the 158 level. The ETF has moved to a Neutral signal. If the ST indicators turn positive, I’ll buy a few shares. Students should continue to watch the 157 level. If that level is broken, the inverse Hockey Stick Pattern suggests a target of 140 or lower.
Bonds: TMF rose 0.93 cents on Thursday to 22.97. This rise came after seeing positive divergence in the ST momentum indicator. Right now, Bonds are still on a Sell Signal. But if the ST indicators turn positive on TMF this week, it could signal that money is starting to move out of equities and into Bonds. I’m still on the sidelines with Bonds, watching the indicators closely. A rally in Bonds would tend to support a decline in equity prices.
I hope you all have a wonderful Easter Holiday Weekend. Marcia and I plan to spend some quality time with our family.
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
04-05-2021
DMI (DIA) | POS |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 31 Mar 2021 |
NASDAQ | NEU | 01 Apr 2021 |
GOLD | NEU | 01 Apr 2021 |
U.S. DOLLAR | POS | 09 Mar 2021 |
BONDS | NEG | 27 Jan 2021 |
CRUDE OIL | NEG | 30 Mar 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