Weekend Strategy Review January 31, 2021

Posted by OMS  at January 31st, 2021

The markets gapped lower on Friday and continued to move lower closing near the target level of 30,000 I mentioned earlier in the week. The Dow finished down 621 points on Friday and was down 1,014 points for the week.  The NASDAQ was down 266 points on Friday and was down 472 points for the week.

Friday’s impulsive decline was a continuation of the Wave 3 decline that started from the 28 January wave 2 high of 30,951.  Sub-wave 1 of that decline appeared to complete late yesterday afternoon near the 29,856 level.  Wave 3 declines consist of five distinct sub-waves.  Friday’s late bounce to the 30,200 level was likely part or all sub-wave 2. If sub-wave 2 is not complete, the Dow could rally to the 30,300 level or possibly even to 30,500+ before it completes.  Sub-wave 2 retracement rallies are hard to predict.  But the point is…once the ‘bounce’ completes, a significant wave 3 of Wave 3 decline should develop that will drop the Dow down to the 29,300 level.  This decline should begin sometime next week, so watch for it.  Then once sub-wave 3 down completes, sub-waves 4 and 5 down should punish the index even more before Wave 3 down is finished. The Dow should be trading near the 26,144 level after all five major waves of the pattern are complete. That’s the level where the rally that produced the Ending Diagonal Pattern for Major Wave 5 up began.

Bottom Line: The Bear Market is only getting started. Protect yourself.

The DMI on the Dow turned negative on 25 January and remains Negative.  The Market Timing Indicator on the Dow (DIA) remains Negative.  The same timing indicator on the NASDAQ remains Neutral.  The Scalp Trading Indicators on the DIA remain Negative.  The same ST indicators on the NASDAQ remain Neutral.   

The Dean’s List and The Tide have turned Negative.  

The Sector Ratio remained at 20-4 Positive after Friday’s session. This tells me the downside momentum in the sectors is just getting started.  If wave 3 of 3 down begins to unfold by mid-week, the Sector Ratio should start getting a lot weaker.  The top 5 strong sectors are Insurance, Retail, Media, Service and Energy.  The four weak sectors are Household Products, Transportation, Telecoms, and Cap Goods.  Continue to pay attention to the Sector Ratio this week.

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

Top Stock Rotation Strategy:  Yesterday was another interesting day for the Strategy.  With the ST Volume indicator (our trigger) on a Negative signal, I was mostly holding (short) weak stocks like CCL and RCL after Thursday’s bounce.  Other stocks I had been short from Thursday’s highs were HAL and ACGL. So, Friday was another Big Pay Day for me.  But even while I was making money to the downside, I noticed that Top Stocks from the MWL were holding their own.  For example, DDS gained another 3.65 points, while the Dow was tanking!  DDD, another Top Stock, was up over 2 points early in the day before succumbing to selling pressure.  The early pop gave students plenty of time to take profits before the short-term indicators turned negative.  Remember…the Dow opened with a large gap move to the downside, so seeing DDD’s early rise was impressive. BBB was another impressive Top Stock, gaining 1.69 points on the day.  Wow!

Again…If you’re not trading my Top Stock Rotation Strategy with my new indicators, I don’t know what to tell you.  Both sides of the new strategy, long and short, did well for me yesterday.  Like I keep saying, get the Class. BTW, if you don’t want to take the Class (???) at least tell your friends and other family members about it. Please.

Going into next week, I will be looking to establish or re-enter short positions in a few weak stocks.  The two cruise lines, CCL and RCL, have been good to me as shorts. My targets for both are significantly lower.  Several weeks ago, when RCL was in the low 80s, I had a target of 50.  Now its at 65. If it bounces early next week, I’ll short it again.  I still believe its going to 50.

I’m not too crazy about shorting most of the other stocks at the top of the weak List.  I don’t know anything about #1 EC.  #2 LVS (Casino stock) has possibilities on a bounce back to its moving average.  The next three stocks, #3 BCS, #4 ACGL, and #5 DBS, are all banking related without a lot of juice. CCL is at #6 followed by #7 XLNX (possible?) and #8 RCL.  Right now, the RS rankings on these stocks are still low, (-4 to -6), which tells me it’s early in the shorting process.  I’ll be looking for better (weaker) candidates as the week progresses.  I’ll also be looking to re-establish a few PUT options I closed out late Friday.  I’ve been trading the 19 March 21 Put with a strike of 280.  I’m also trading the same date SPY PUT with a strike of 320.   An alternative is the 330 strike.  Late Friday these Puts were trading at 3.36 and 4.10, respectively.  I’m also interested in picking up a few shares of TZA, an extremely aggressive inverse (3X) ETF for the Russell 2K.  I’m looking to buy it below 5.50.  Be careful with this one.  I’ve also been buying (trading) SQQQ and SPXU on the 3 min bars.  When the market is making large moves to the downside, I have found that it really pay$ to watch the ST Momentum Indicator on these two aggressive ETFs very closely :>)

BTW, gold appears to be nearing completion of wave ‘c’ up of wave 2 up.  Once this ‘bounce’ completes, I’ll be looking to aggressively short gold and mining stocks.  I still believe that gold and silver will be trading lower in the months ahead.  My target for gold remains near or below the 1,700 level.  Silver could see 20-21.  On Friday, silver closed at 26.95.  If wave 2 up for gold is complete, gold and mining stocks should begin to head lower next week.  Watch the indicators and wait for them to give say so.  

None of the mentioned stocks are recommendations.  I don’t make recommendations. I just trade what I see on my Lists.

That’s what I’m doing,

h

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

02-01-2021

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.