Weekend Strategy Review August 16, 2020

Posted by OMS  at August 16th, 2020

The markets were mixed on Friday.  The Dow closed 34 points higher at 27,931.  It was up 498 points for the week. The NASDAQ was down 23 points on Friday, but up 8 points for the week.

The NASDAQ is currently the weaker of the two indexes and is close to generating a new Sell Signal.  Friday’s action on the tech heavy index caused its four breadth indicators to turn Negative.  So, IF there was a Tide on the NASDAQ, it would be Negative.  Incidentally, the Hi-lo indicator on the NYSE turned Negative on Friday causing The Tide to turn Neutral. So, even though Friday’s action seemed muted on the surface, there were some very important changes taking place below the surface.  Students should not ignore the fact that all four breadth indicators on the NASDAQ are now negative.

From a pattern perspective, it still appears that the markets are in the final stages of completing their topping patterns.  Friday’s non-impulsive movement in the Dow appeared to form a small triangle on the short-term bars. If this is the case, the Dow should have one more small ‘pop’ higher early next week to complete wave 5 up.  The up move should retest the 28,000 level with 28,200 possible.  Last week’s wave 3 high was 28,155 so the five wave pattern should complete near or slightly above that level.  If the rally does not occur, watch for a break of the 11 August low at 27,624, as this would increase the odds that Major Wave 3 down is underway. 

The NASDAQ has a slightly different pattern.  It may have already completed its wave 5 pattern as the action since its 13 July top of 11,282 has been five waves down followed by an a-b-c retracement into last week’s high.  The five waves down from 13 July were impulsive so if the NASDAQ starts to head down next week, it will likely be Wave 3 down of Major Wave 3 down. So, with a negative Tide and a pattern that suggests Wave 3 of Major Wave 3 down could be starting, the NASDAQ is the index to watch next week.

If the NASDAQ breaks below last week’s low of 10,855, I will go to Full Red Alert.  A break below 27,624 on the Dow would trigger the same alert.

The Market Timing Indicators for the Major Indexes remain Positive. 

The Dean’s List and The Tide are Positive.  

The Sector Ratio weakened to 18-6 Positive after Friday’s session.  Students should note that the Sector Ratio is beginning to weaken.  IF it continues to weaken next week and turns negative, pay attention. 

The top five strong sectors were Service, Retail, Material, Household Products and Healthcare.  The five weakest sectors were Real Estate, Banks, Energy, Leisure and Financials.

There were NO CHANGES to the Model on Monday.  The Model continues to hold trial positions of 1,200 shares of TWM, 1,600 shares of DXD, 400 shares of DUST, and $43,379 in cash.  The Model continues to look for opportunities to buy shares of inverse index ETFs.

Gold (GLG) fell 0.79 points on Friday and was down 8.27 points for the week.  After its initial decline earlier in the week, GLD appears to be forming a small wave 2 Blade of a Hockey Stick pattern.  If this is the case, GLD should begin its slide to new patterns lows next week.  There’s still a chance that Gold (the metal) could push slightly higher to fill the gap near the 2,000 level, but it’s not required.  The retracement to 1,967 was an a-b-c move so it fulfills the technical requirement of a wave 2.  If gold makes an impulsive move down early next week, the odds are high that wave 3 down is underway.  This wave should take gold well below the 12 August low of 1,870 with significantly lower prices likely. Physical gold closed at 1,946 on Friday.

With gold looking like it wants to go lower, the Dollar appears to be stabilizing and forming a bottom.  The wave count suggests the bottom is a wave 2 down.  If I’m correct about this, the next rally should be a significant Wave 3 up. I’m seeing the same thing only in reverse for the Euro, which means the European Central Bank’s currency could be in for a significant decline.  Students should watch for a potential signal change next week.

Have a great weekend.

That’s what I’m doing,

 h

Market Signals for

08-17-2020

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.