Weekend Strategy Review January 3, 2021
Posted by OMS at January 3rd, 2021
The market were mixed on Thursday, the last trading day of the year. The Dow pushed to a new record high of 30,637, a number (above 30,600) I talked about several weeks ago as the likely target for the Ending Diagonal Pattern. Last week I also talked about two Scenarios for the Dow, one Bullish and one Bearish. I said that if the Dow moved above 30,304, it was likely the Bullish scenario was underway and the Dow would trade to the 30,600 level. That happened on Thursday..
The Dow finished with a gain of 197 points, closing at 30,606. It was up 406 points for the week. The NASDAQ was up 18 points on Thursday and up 84 points for the week. Small cap stocks didn’t fare as well as their big brothers as the Russel 2K finished down 5 points on Friday and down 29 points for the week. So, while the Generals are still pushing higher, the troops (the small caps) are saying …not so fast. It’s the troops that almost always know what’s really happening on the battlefield…way before the Generals. This performance difference between large and small cap stocks creates an inter-market divergence, something that is almost always seen at market tops.
Breadth continues to lag during this topping process, as evidenced by the negative Tide. My AIQ analysis platform kicked out two preliminary 1-99 Sell Signals on Wednesday and Thursday. These sell signals are generated by the artificial intelligence algorithm within the system when the market makes a new high with a negative Up-Down volume indicator. A second sell signal was also generated by the combination of a new high with a negative advance-decline indicator. So now, if the momentum (or in the case of AIQ’s system…the Phase) turns negative, these preliminary Sell Signals will be confirmed.
In Thursday’s Comments, I mentioned that the main indicator in the Tide, the A-D oscillator, has been below zero for the past eight trading days. Now, it’s been negative for nine days. It is EXTREMELY rare to see the market rise for nine days with a negative A-D oscillator, as a negative oscillator means that more stocks on the NYSE are declining than advancing. This should be taken as a major warning. It means that internals of the patient (the market) are weak. Last week, when I talked about the Dow pushing to 30,600+, I wondered if my target would be reached with a negative A-D oscillator. But then I remembered that the final wave in an Ending Diagonal Pattern is usually a ‘through-over’ wave, or the final push. I believe this is what Friday’s rally was all about.
So, what happens now? Well, sometime in the next week or so, after some backing and filling, the markets should begin their down-slide in earnest. After the first two waves develop, the decline should begin to gain momentum. The two things I’m looking for to confirm the next Bear Market is underway are a decline below 30,000 and large, impulsive action. If the decline is choppy with small retracement rallies, it’s likely not the start of wave 3 down. Once wave 3 down begins, you’re gonna know it. The daily declines should exceed 500 points or more. All this should happen quickly, so stay on your toes.
As of his weekend, the Market Timing Indicators on the Dow and the NASDAQ remain Positive.
The Dean’s List remains Positive; The Tide is Negative.
The Sector Ratio strengthened to 22-2 Positive after Thursday’s session. The top 5 strong sectors are Insurance, Media, Service, Semiconductors and Financial. The two weak sectors were Telecoms and Real Estate.
Model Update: There were NO Changes to the Model. It remains 100 percent in cash.
The Markets will re-open on Monday but I won’t be trading. Marcia and I will be going to the Prime Osborn Convention Center on Monday to get our Covid-19 vaccine shots. Supposedly, if you are over 65, you can schedule an appointment by calling 904-253-1140. This didn’t work for me. I got my appointment by using the on-line form at https://jax.readyop.com/fs/4cc6/8521. It was easy!
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
01-04-2021
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 30 Dec 2020 |
NASDAQ | POS | 23 Nov 2020 |
GOLD | POS | 30 Dec 2020 |
U.S. DOLLAR | NEG | 07 Dec 2020 |
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