Weekend Strategy Review January 24, 2021
Posted by OMS at January 24th, 2021
The markets gapped lower at Friday’s open after completing a five wave pattern into Thursday’s high of 31,272. Friday’s early decline was impulsive but stopped at the 30,908 level before starting an a-b-c rally into the late afternoon. It’s possible that the intraday action was the start of a new change in direction for the markets. One of the reasons I say this is because the last 15 minutes of Friday’s trading saw an impulsive decline. Impulsive moves occur in waves 1, 3 and 5, so it’s possible that wave 3 down in the sequence has started. We’ll just have to wait and see on Monday.
The Dow finished the day with a loss of 179 points, closing at 30,997. It was up 183 points for the week. The NASDAQ was up 12 points on Friday and up 544 points for the week. It was a particularly good week for tech stocks. It was also a great week for the top stocks in out Top Stock Rotation Strategy, as stocks like Three D Systems (DDD) was up another 3.1 points on Friday and up 6,2 points for the week, even though the Dow finished 179 points lower. BIDU, DDS, BBBY, and TSLA, other top stocks from the MWL were also up on Friday. Like I’ve been saying, it Pay$ to be in the top stocks.
Even though the Dow lost 179 points on Friday, there wasn’t a lot of selling pressure. The advance-decline ratio was slightly positive at 1.09 to 1. Also, the up-down volume on the NYSE was basically flat at 50-50. However, Friday’s trading action did cause 2 more of the breadth indicators to turn negative, so now 3 of the 4 breadth indicators that make up The Tide are now negative. The lone holdout is the Up-Down Oscillator. So, breadth (The Tide) is something that will need to watch as we move into next week. If it turns negative, it will add to the pile of evidence that a major top is at hand.
Last week, I said ‘the rising wave structure in the markets might have a bit more rally left before the pattern completes, but I it should be finished within another week or so.” So, this week, we had that rally into Thursday’s high. The market could still push a bit higher if Friday’s early decline was the completion of minor wave 4 of the final rally. However, after watching Friday’s late decline, it looked more like the start of wave 3 down than anything else. One thing that caused me to favor the downside scenario is that Friday’s action caused a change to the indicators. The ST Volume indicator on the 4 hour Dow turned negative. This could be a Big Deal! The Daily ST Volume indicator is still positive, but the momentum on the 4 hour chart has moved out of the Trend Zone. As I said in last Wednesday’s free webinar, I use the 4 hour chart as a ‘Heads Up’.
As most of you know by now, I use the Daily ST Volume indicator on the Dow (DIA) as the ‘trigger’ in my Top Stock Rotation Strategy. So, with the daily Volume indicator being negative, I can no longer buy Top Stocks from the MWL. All I can do now is to hold those top stocks…until the ST Momentum indicator tells me those top stocks are no longer trending. Truth be told, I have already started to prune my garden, taking about half off in most of my positions. I know that stocks, even Top Stocks, don’t go to the moon. But when I look at the Top Stocks on the Weak List, it still looks to be a bit early to begin shorting. There are several gold and mining stocks at the top of the Weak List, like #1CDC, #4 PAAS, #10 FNV and #11 WPM that appear to be short-term trading candidates, but for the most part, I still don’t see stocks that would lead a mass migration to the downside. Friday’s 13 point decline in IBM turned its indicators negative (a sell signal) and moved the stock to the 16th position on the Weak List. But other than IBM, I don’t see any of the big name stocks that would likely lead the market lower anywhere near the top of the Weak List. One stock I’m looking to short, RCL, is near the very bottom of the Weak List. If it begins to move up on the List, I’ll let you know. Right now, RCL in is developing a reverse cup and handle pattern …look at the chart. So, if it starts to break below 70, it could be a long way down. The 15 point ‘stick’ suggests a price near or below the 55 level. The 30 October low is 51.33. I’m using this as my initial target. Right now, the daily ST indicators on RCL are negative. Keep an eye on this stock if it breaks below 70.
Most of my indicators have turned Neutral after Friday’s decline. I continue to see large negative divergences between price and breadth. Like I said, at the end of the day, its usually breadth that wins, but not without a fight.
The Dean’s List remains Positive; The Tide remains Neutral, but 3 of the 4 breadth indicators have turned negative.
The Sector Ratio remains at 22-2 Positive. The top 5 strong sectors are Insurance, Retail, Energy, Autos, and Media. The Banks have dropped out of the top 5 sectors and are now at the #8 position on the Strong List. Remember, we’re watching the Banks now, as they could be in trouble. The VZO on the Banks has turned negative and the momentum indicators have moved out of the Trend Zone. Students who attended last week’s webinar know what that means…. it’s a sell signal! Check the Matrix. The two weak sectors are Telecoms and Household Products. Pay attention to the Sector Ratio next week. If it starts to turn negative, you might want to start managing your money.
Model Update: There were NO Changes to the Model. It remains 100 percent in cash.
BTW, during the week, we had another student purchase the Scalp Trading Class. Bridget decided to join the family and will now be participating in the free follow-on training sessions I will be conduct to educate students in my new Top Stock Rotation Strategy. If you want to thoroughly understand the power of this new trading strategy, a strategy that has produced nothing but winners, please let me know. Because most of my students have paid $249 to learn this new strategy, you cannot expect me to share it with non-participants. So please, …. If you haven’t signed up yet for the ST Class, please get the Class. This is no time to be cheap! All we’ve had is winners. Don’t take my word for it…. check it out. Go back to the MWL on 18 December and see what happened to the Top Stocks. Please think about taking the Class. Let me know and we’ll get you signed up for the Basic 3 video set and the two follow-on training sessions. Do it! The next few years are going to present us with many opportunities to make money. Now is the time to spend a few bucks on your education. Like I said, do it!!!
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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
01-25-2021
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 22 Jan 2021 |
NASDAQ | POS | 20 Jan 2021 |
GOLD | NEG | 08 Jan 2021 |
U.S. DOLLAR | POS | 13 Jan 2021 |
BONDS | NEG | 09 Dec 2020 |
CRUDE OIL | POS | 11 Nov 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