Weekend Strategy Review August 9, 2020
Posted by OMS at August 9th, 2020
The markets were mixed to flat on Friday. The Dow finished 47 points higher, closing at 27,433. The NASDAQ finished 97 points lower, mostly due to a decline in Apple which fell 11 points.
In Thursday’s 11.15 Update, I mentioned that I was watching Apple (AAPL) as a possible short. I talked about how the stock appeared to need one more thrust higher above the 450 level to complete wave 5 up of a five wave pattern that started from the 23 March low of 212.61. This weekend I want to give you the reasons why I continue to watch the stock and have started to short it.
As I mentioned in the Update, Apple is not only a NASDAQ stock, its one of the main components of the Dow. The rally in Apple along with the other FANG stocks led the market higher in its Wave 2 retracement rally. To give you an idea about how important Apple is to the indexes, consider the following: Apple is not only the country’s largest stock, it’s close to being the largest stock in the entire world. When Apple reached its high this week, its market capitalization was about 90 percent of the entire Russell 2000. Never in the history of mankind was one stock more highly valued. So, what happens to Apple matters, especially now that it appears to be completing its five wave retracement pattern.
In Thursday’s comments I gave my initial downside targets for Apple. These targets are near the two gaps the stock made on its recent rally. The first gap was made on 31 July near the 425 level. If this level is broken, the next stop should be near 385. Then if 385 is broken, the odds increase significantly that the 23 March low of 212.61 will be tested.
Right now, Apple is the number one weighted stock in the Dow 30. On 31 August, Apple will split 4:1 dropping its leadership position from number 1 to 16 in the Dow 30. During the past 5+ years, APPL has been a major contributor to the Dow’s rise. But now that APPL appears to be completing its wave 5 pattern and with a reduced role in the Dow as of 31 August, it’s hard for me to see the stock leading the market higher anymore. If anything, it should be one of the mid-pack members taking the overall market lower.
I shorted APPL last Thursday as a Scalp Trade just under the 457 level when it appeared to complete Wave 5 of a five wave upward thrust that began from the 24 July low of 357. If Apple starts to trade below Friday’s low, it will become my go to short using my Scalp Trading Indicators.
Here’s what I’m watching this week: Now that the Jobs Report is behind us, I’m still watching the 26,800 level on the Dow. BTW, I don’t know what to make of Friday’s Jobs report. On the surface, the report looked good. But if you dig deeper, it’s suspect. For example, the report said that payrolls increased to 1,763 M vs. the 1,480 M expected. Also, unemployment fell to 10.2 percent vs 11.1 the previous month. But these numbers are a flat out guess. The BLS does NOT really know what the actual numbers are so they take a mid-month ‘sample’ of where the labor market is and project it for the full month. The problem is that with a large state, like California, that closed its indoor businesses on 15 July, any projection is likely to be way off. The estimate could range from a decline of 600K to a gain of 3.2 Million. So now you see why I don’t put any faith in the government’s numbers.
Anyhow, I’m watching Apple and the 270 level on the DIA. I’m particularly interested in Apple now, mostly because it’s a large stock and its pattern tends to be truer. Also, with a P/E of 33.71, I believe its richly priced. On Friday’s 5 min bars, you can clearly see how the mini-wave 1 decline occurred from the high of 457.65 into the 441.17 low. The decline was accomplished in 5 clear waves, so it’s likely wave1 down. This was followed by a mini-wave 2 rally that had a choppy broken a-b-c pattern. The pattern might need another small pop early Monday to complete the retracement wave. The thing to watch now is the 441 level, as a break of this level would start the wave 3 decline that could get the down draft going. So, watch 441 on APPL.
For the DIA, the 270 level is last Wednesday’s opening gap low. If this level is broken, it should lead to a test of Dow 26,800. This is the level near the mini wave 1 high that occurred on 4 August on the 15 min bars. If prices start to fall below this level, the odds are high that Wave 2 up is complete, and Wave 3 down is starting. A break of 26,800 should lead to an immediate re-test of the 26,300 level which if broken should take prices significantly lower prices.
Once Wave 3 down starts, it should pull the Dow below the 15 June low of 24,843. My current target for Wave 3 down remains slightly below the 23,000 level. Once all five waves of Major Wave C down are complete, the Dow should be trading below its 23 March low of 18,213 with 17,000 or lower possible.
If the Dow (DIA) falls below the 270 level, I will start getting concerned. I will go to Full Red Alert below 26,800 as the odds that Wave 3 down is underway will increase significantly.
The Market Timing Indicators for the Major Indexes remain Positive.
The Dean’s List and The Tide are Positive.
The Sector Ratio rose to 23-1 Positive after Friday’s session. Continue to watch the Sector Ratio closely in the days ahead. Again, IF it begins to weaken, pay attention.
The top five strong sectors were Service, Material, Consumer Products, Retail and Healthcare. The one weak sector was the Banks.
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 fell hard yesterday along with the miners. GLD fell 3.08 points to 190.81. The metal still appears to be in the process of completing its wave 5 rally. The miners also appear to be completing their wave 1 rally. Once this rally completes, wave 2 down should take prices significantly lower.
The Dollar rose slightly yesterday and still appears to be nearing completion of a large Wave 2 down retracement. If the Dollar begins to rally, it should be a significant Wave 3 up. This should cause gold prices to decline. Look for a potential signal change this week. It’s getting close. BTW, if you like to trade currencies, like the Euro vs. the Dollar, the Euro appears to be nearing completion of it’s a-b-c retracement pattern. So, the three Amigos, the Dollar, Euro and Gold, all appear ready for a trend reversal.
Same for Bonds. They fell slightly yesterday and appear to be close to completing a Wave 2 up. Wave 3 down should be next. TMF, the Bond ETF, fell 1.2 points yesterday to 445.02. I’m still using the 21 July low of 43.5 as the level that would signal the start of Wave 3 down. If this level is broken, I will look to add a few shares of TBT to the Model Portfolio. I’m just waiting for a signal change.
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
08-10-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 05 Aug 2020 |
NASDAQ | POS | 30 Jul 2020 |
GOLD | POS | 23 Jun 2020 |
U.S. DOLLAR | NEG | 24 Jun 2020 |
BONDS | POS | 22 Jul 2020 |
CRUDE OIL | POS | 06 Jul 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