Weekend Strategy Review August 22, 2021

Posted by OMS  at August 22nd, 2021

The Dow completed a short-term decline with Friday’s low of 34,690.  The decline did not fall to the 34,450 – 34,550 level, the target level I mentioned in my last Update. This means that two scenarios are now possible.  The first is that Friday’s rally was a wave 4 up within Wave 1 down. Once complete, wave 5 down should drop the Dow down to the previously mentioned targets.  The second scenario is that Thursday’s low of 34.690 was wave 4 within a large Ending Diagonal, which means the Dow could still make one more rally before the final top is in.  At this point, either scenario is possible.

The decline since the 16 August top of 35,631 was impulsive.  However, it only consisted of three waves, not five waves.  This means that Thursday’s low could have been Wave 4 down within the large Ending Diagonal Pattern. If this is the case, the Dow could still rally to a final top within my projected window of 26 August to 10 September plus or minus a week.  My projected target in this Bullish scenario is near the 35,800 level.

On the other hand, the rally from Thursday’s low of 34,690 into yesterday’s high of 35,177 was a classic a-b-c rally, which means it could have also been a retracement wave 4 within Wave 1 down.  If this is the case, a decline below 34,983, the initial high made on 19 August, would increase the odds that wave 5 of Wave 1 down is underway.

So, the two numbers to watch on Monday are 35,177 which would increase the odds for a rally to a new high, and 34,983 which would suggest the Dow is starting wave 5 of Wave 1 down.

As of yesterday’s close, the Market Timing Indicators for the Dow, S&P, and NASDAQ are Neutral.

The Scalp Trading Indicators for the Dow (DIA) have turned Neutral.  The same indicators for the S&P (SPY) and NASDAQ (QQQ) have turned Positive.

The Dean’s List has turned Positive. The Tide remains Negative.

The Sector Ratio strengthened slightly to 8-16 Negative after yesterday’s session. The top five strong sectors were Food Drug (3), PharmaBio, (2), Household Products (1), Computers (1) and Cap Goods (1). The top five weak sectors were Energy (-7), Autos (-3), Leisure (-3), Transportation (-2) and Semiconductors (-2).

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

Top Stocks: One of the things I was looking at yesterday what happens when there is a signal change on the cockpit, the box that has the red, green, and yellow timing signals.  For example, when the timing signal on Crude Oil turned Red on 2 August, it probably didn’t turn any heads.  But if you looked at the Dean’s List that night, you would have seen DUG, the inverse ETF for Crude Oil in the #5 position on the List with a RS rating of 3.  DUG was trading at 13.67.  The Scalp Trading indicators on DUG were positive on 2 August when the Market Timing Signal gave the go ahead.  Two weeks later, DUG reached a high of 15.79 for a 14 percent profit. 

The reason I wanted to talk about the Dean’s List and DUG today is because GBTC, the ETF that has a big chunk of Bitcoin, is now back at the top of the Dean’s List.  The ETF started to appear on the Dean’s List in late July, just after the Scalp Trading Indicators turned positive on 23 July.  By 28 July, GBTC was at the top of the List.  I added GBTC to the data base for the Dean’s List because I felt that Bitcoin was about to start Major Wave 5 up which could take Bitcoin to new highs.  Anyhow, not only is GBTC at the top of the Dean’s List, but the two Bitcoin miners, MARA and RIOT are also at the top of the Member’s Watch List with very high RS rankings.  GBTC is ranked 12, while MARA and RIOT have rankings of 13 and 7. At this point, I don’t have a Market Timing Indicator on the cockpit for Bitcoin or the Bitcoin Miners.  Maybe I should.  But if I did have a Timing Indicator for Bitcoin, it would have turned positive yesterday.  You know the drill, but if you don’t, I’ll repeat it. 

When a Market Timing Indicator for sector (gold, bonds, etc.) turns positive, we simply go to the Member’s Watch List or Dean’s List and select stocks and ETFs in that sector.  If the Scalp Trading Indicators are positive, we buy he stock or ETF.    Once we are in the trade, we stay in the trade until the indicators tell us to get out.  That’s it.  So, with GBTC at the top of the Dean’s List and MARA and RIOT at the top of the MWL, you know I will be paying attention to the miners on Monday.

Gold:  The ST indicators on GLD remain neutral, so I’m still on the side lines with gold.   BTW, I’m showing mixed signals between gold and the miners.  It’s possible that gold could trade higher as the miners move lower along with the market.  The miners are NOT gold.  So, be patient. Wait for a change in the Timing Signals and if you trade the miners, pay attention to the Scalp Trading Indicators.

Bonds: The Timing Indicators for Bonds (TMF) turned positive on 18 August.  However, TMF is still no where near the top of the Dean’s List.  And with an RS ranking of 1, I’m going to pass on any Bond trade for now.  I still believe that Bonds are approaching the top of a Wave 4 retracement pattern and once complete, will begin a significant decline as interest rates rise.

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

08-23-2021

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.