Weekend Strategy Review August 30, 2020
Posted by OMS at August 30th, 2020
The markets staged another rally on Friday, this time on relatively low volume. The rally occurred just after a small consolidation triangle, so it was likely part or all final wave 5. The major thing that I noticed from an indicator perspective was that the Hi-Lo indicator finally turned negative. So now, 3 out of the four breadth indicators that make up The Tide are negative. This is occurring at a time when the patterns for the all the major U.S. and world markets I follow have reached or exceeded their Fibonacci retracement targets. The thing students should look for now is the start of a five wave down sequence that would confirm that these markets have topped and are starting a major trend reversal. A close below last Monday’s opening gap low of 28,078 would be the first step in this process. A decline below the 20 August low of 27,526 would confirm that Major Wave 3 down is underway. BTW, most of the world markets have patterns that suggest a decline of 50-60 percent or more during the next 2 years. These patterns are long term patterns and as such tend to be very reliable. The fact that they are occurring at a time when U.S. markets are in similar topping patterns, with sentiment readings at historic levels is troublesome and of major concern.
A break below 28.078 on the Dow will cause me to go to Full Red Alert on that index.
The NASDAQ, driven by a handful of FAANG technology stocks, has made a parabolic rally since its fourth wave consolidation completed in late July. Since then the rally has made five distinct waves, with the final fifth wave being a class five wave sequence. This final fifth wave appears complete with Friday’s advance, but if now, it could push to slightly above the 12,050 level. If this final rally does not occur, students should watch for a decline below 11,843 as this would increase the odds that the next major wave down is underway. BTW, the rally in the NASDAQ for the past nine trading days has been accomplished with a negative A-D oscillator, something EXTREMELY unusual. A negative A-D oscillator means more stocks are declining than advancing.
Other non-equity markets, like the Dollar, Euro, Bonds and Gold, also appear to be at or near major reversal points.
The Market Timing Indicators for the Major Indexes remain Positive.
The Dean’s List remains Positive while The Tide remains Neutral. As I mentioned above, three of the four breadth indicators that make up The Tide are now Negative. The only positive holdout now is the Up-Down oscillator, which is usually the last breadth indicator to turn. BTW, the Up-Down Oscillator has been Positive since 14 July, the start of the current rally, so a turn negative would be significant.
The Sector Ratio fell slightly to 19-5 Positive after Friday’s session. Students should continue to watch the Sector Ratio as the week progresses. IF it begins to weaken and turns negative, pay attention. Right now, seven of the strong sectors have an RS rating of 1 or zero. So, IF the market begins to fall, the decline could produce a major change in the Sector Ratio very quickly. BTW, during the week, my sector chart, turned Neutral. This chart is generated by combining all 24 of the individual sectors in my data base. The chart has been positive since the sectors started their wave five rally on 13 July. Now the sector chart is Neutral.
The top five strong sectors were Transportation, Retail, Material, Computers and Service. The five weak sectors were Energy, Banks, Real Estate, Utilities, and Financials.
There were NO CHANGES to the Model after yesterday’s session. 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) rose 3.15 points yesterday to 184.39. Gold remains on a Neutral Signal waiting for Wave 3 down to begin. Spot gold closed at 1,964 yesterday. A decline below last Wednesday’s low of 1,903 would confirm that the metal will likely trade down to the 1,700 level. The level I’m watching on GLD is a break of last Wednesday’s low of 180.2.
The Euro and the Dollar still appear to be completing major reversal patterns. This would be a top for the Euro and a bottom for the Dollar. The Dollar continues to look like it needs one more small decline to complete a small wave 2 down before it begins its wave 3 rally. The reason I say this is because since the beginning of August, the Dollar appears to be trapped in a triangle. Triangles are consolidation patterns and the move out of a triangle is usually in the direction it entered the triangle. In this case, the move should be down. So, this week, the Dollar should decline slightly below the 92 level before it starts its Major Wave 3 rally. Students should watch for a possible signal change in the Dollar toward the middle of next week.
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
08-31-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 20 Aug 2020 |
NASDAQ | POS | 30 Jul 2020 |
GOLD | NEU | 26 Aug 2020 |
U.S. DOLLAR | NEU | 25 Aug 2020 |
BONDS | NEG | 13 Aug 2020 |
CRUDE OIL | NEU | 14 Aug 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.
Category: Professor's Comments, Weekend Strategy Review