Weekend Strategy Review August 15, 2021

Posted by OMS  at August 15th, 2021

Stocks traded in a narrow range yesterday on low volume. The 6.49 billion shares traded on the NYSE was the lowest volume of the year. Seeing low volume when the Dow and S&P are making new highs is troublesome, especially when the indexes appear to be completing the final wave of a five-wave impulse pattern.

Final wave 5 up on the Dow and S&P can be seen on a 15-min chart. The rally started on 3 August. Waves 1 up and 2 down of the pattern were completed by 4 August.  It was quick. Then once wave 2 down was complete, both indexes started a five-wave rally for wave 3 up that appeared to complete with Wednesday’s high.  The flat to sideways trading that occurred during the rest of Wednesday and into early Thursday appeared to be wave 4.  From the wave 4 low, the rise into yesterday’s high of 35,610 appeared to be final wave 5.  In other words, Friday’s narrow trading on low volume could have been the final top for the major indexes.  We’ll see.

There weren’t any celebrations on Wall Street yesterday.  No sparklers, no fireworks, no blowing horns, or bursting balloons…no nothing. It was an incredibly quiet day that did not produce any change to the Market Timing Indicators. But if you look closely at the volume and breadth, it’s hard to ignore the fact that the two major indexes, the Dow and S&P, made back-to-back new highs on a day when there was more down volume than up volume.  It’s also hard to ignore the major divergence in momentum that is being caused by this low volume trading. Students can clearly see this by pulling up a 30-minute chart of the Dow (DIA) and looking at the new bias indicator I introduced during my recent Update Class. So now, after seeing five complete waves, I’m just waiting for the ST Indicators to turn negative.  I still believe the market will top somewhere in the late August September. If you put a gun to my head and asked for a specific date (based on Fibonacci numbers), I’d say somewhere between 26 August to 10 September plus or minus a week.  So, the earliest day would be 19 August. That’s only 3 days from Monday.  In other words, next week’s market action could be interesting. Despite all bell ringing that takes place at the open and close of the NYSE, nobody ever rang a bell at a major turn in the market. You must listen for the sound of silence from the indicators. Pay attention. Here’s a couple of numbers to watch:  A close below 35,352 on the Dow would increase the odds the top is in. The 34,352 number is last Thursday’s wave 4 low.  If the Dow is to push higher, it should not fall below the wave 4 low.  So, 35,352 is a clear line in the sand. The number for the S&P is 442.66.

As of Friday’s close, the Market Timing Indicators for the Dow, S&P, and NASDAQ remain Positive.

The Scalp Trading Indicators for the Dow (DIA), S&P (SPY) and NASDAQ (QQQ) also remain Positive.

The Dean’s List and The Tide have turned Neutral.

The Sector Ratio weakened to 12-12 Neutral after yesterday’s session. Last Wednesday, the Sector Ratio was at 15-9 Negative, so the Ratio fell as the indexes were making new highs. Another sign of divergence. Hmmm? The top five strong sectors were PharmaBio (3), Food Drugs (2), Cap Goods (2), Computers (1), and Technology (1). The top five weak sectors were Energy (-5), Autos (-2), Leisure (-2), Real Estate (-1) and Foods (-1).

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

Top Stocks:  In Thursday’s Update I used this space to talk about Position Trading. I received a lot of positive feedback from this discussion, as the use of either the 30- or 60-min bars tends to keep students in trades a lot longer, which simplifies the process.

Here’s an example of what I have been doing with Royal Caribbean (RCL), which owns Celebrity, my favorite cruise line.  As most of you know, I love to go cruising with Marcia. But with Covid19 making large cruise ships petri dishes for the virus, we haven’t taken a cruise since December 2018. Neither have a lot of other seniors. With all the restrictions on vaccinations, cruise ports, and excursions, you must wonder if it’s worth it. Do I really want to visit the Bahamas or a secluded island off Haiti? No!!!  Every day I continue to get pretty brochures from Celebrity offering free booze, free gratuities, free everything…just to get me to come. But to me, the pretty brochures are like putting lipstick on a pig. Until Covid ends, any cruise ship is still a petri dish.

Anyhow, with ships operating on condensed itineraries, Celebrity is having issues attracting passengers. Fewer passengers mean less revenue to pay for the enormous debt they incurred when they purchased their new fleet of ships. On Friday, RCL announced that they will be selling $1 Billion of unsecured notes due in 2026 to raise cash. They said they MUST do this to survive the global shutdown that has been ongoing since the pandemic started in February 2020. Survive…are you kidding me? Issuing more dept on ships that are already sinking from debt. The words didn’t sound like a rosy scenario to me.

So, with this financial backdrop, I was looking at a 30 min chart of RCL on Friday. At this point, you should pull up the chart too. If you look closely, you will see that RCL has been moving higher in a five-wave pattern that started from 4 August low of 70.74. On Wednesday, it hit a high of 82. Students should note how the ‘Bias’ or momentum remained positive during the entire run-up. If you used the ST Indicators, you would have entered the trade at the opening on 5 August near the 72.6 level. The exit occurred just after last Thursday’s open near 81. So, students using the 30s had an easy 6–7-point profit in 5 less than 5 trading days.  If you traded 500 shares that’s about $3,250. This is the reason I’m beginning to talk more about using the 30s. It’s less stressful! You’re not trading all the time.

OK, so after RCL made its top at 82, the next day it started to decline. The decline appeared to be wave 1 down. This was followed by a sideways to up wave 2 into Friday afternoon. Students should note how the volume and momentum turned negative early Thursday, with the momentum staying negative during the wave 2 rally. The entry point for the wave 3 decline came at 11:30 when the volume turned negative again. With both volume and momentum negative, the stock dropped from 79.85 to 78.28 for a 1.57-point profit. The short set-up was a classic Hockey Stick Pattern. BTW, the trading action on RCL since the 6 August high has appears to be developing a classic Head & Shoulders Pattern with the 11 August high being the ‘Head”. If this pattern continues to develop, the 6-point head projects a target down to the 70 level, which is near the 4 August low. BTW, IF this major topping pattern continues to develop, the next target area is near the 60 level with significantly lower prices after that possible. This is the reason I continue to trade RCL to the short side.

BTW, I was also watching RIOT on Friday, but the indicators on the 10s were negative, so I stayed on the side lines. If the 10s or 30s turn positive on Monday, I’ll buy a few shares. I really like the crypto miners here now that major Wave 5 up appears to be starting on Bitcoin. As long as GBTC stays near the top of the Dean’s List, and RIOT and MARA stay near the top of the MWL, I will remain interested. 

Gold and Bonds:  The ST indicators on GLD and TMF remain neutral, so I’m still on the side lines with both issues. Next week could be a significant week for equities, gold, and Bonds. Be patient and wait for a change in the Timing Signals.

Have a great weekend,

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

08-16-2021

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.