Weekend Strategy Review July 26, 2020
Posted by OMS at July 26th, 2020
The markets resumed their slide on Friday with the Dow shedding another 182 points to close at 26,470. The large cap index was down 202 points for the week. The NASDAQ lost 98 points on Friday and was down 140 points for the week. However, the declines did not produce Sell Signals on the indexes.
At this point I have two scenarios for the markets. Both scenarios call for lower prices, but one could see higher prices before falling. I show the two scenarios in the attached Dow chart, but the other indexes are basically in the same boat.
The first scenario has the Dow moving slightly higher early next week to complete a small wave 2. Because the decline of the past two days was impulsive, I must assume that it was part or all of wave 1 of Wave 3 down. So once wave 1 down completes, the Dow should see a small bounce, maybe to the 26,700+ level. Then once wave 2 completes, the Dow should begin to decline in wave 3 of Wave 3 down. (see chart). This is my primary scenario.
On the other hand, because the market timing indicators have still not turned negative, I can’t ignore the possibility that minor wave 2 up is not finished. The technical pattern still allows for a rally back to the 15 July high of 27,071. Under this alternate scenario, the sideways action we’ve seen since the 15 July high can be interpreted as an a-b-c move for a corrective wave 4 down, which means the Dow still needs a wave 5 up rally to complete Wave 2 up.
Here’s the thing to watch: IF the Dow breaks below 26,300 (the red line shown on the attached chart) it’s likely that my primary scenario is underway, and that downside momentum will begin to accelerate as Wave 3 down unfolds.
The Market Timing Indicators for the Major Indexes remain Positive.
The Dean’s List strangely turned back to Positive after Friday’s session as DDM replaced DXD on the List. This is another reason for caution. The Tide has turned Negative.
The Sector Ratio was 23-1 Positive after yesterday’s session. Continue to watch this indicator closely in the days ahead. Again, IF it starts to weaken, pay attention. My 14-period Velocity indicator for the Composite Sectors fell yesterday, but it remains above the zero line. My custom VTI indicator also fell yesterday, but with a reading of 71.72 remains in the Up Trend Mode. The fact that these two indicators remain strong AND the strong Sector Ratio are keeping me from getting too negative.
The top five strong sectors were Autos, Material, Consumer Products, Healthcare and Cap Goods. The only weak sector was Household Products.
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 a lot of cash. It continues to look for opportunities to buy shares of inverse index ETFs.
Gold and the miners rose again yesterday. GLD was up 1.52 to 178.7. The metal continues its wave 5 rally that could see slightly higher prices. Once this rally completes, the next wave down should take prices significantly lower. The miners continue to show large negative divergences and should be close to topping.
Bonds are another trading vehicle that appear to be topping. In the case of Bonds, the pattern suggests an a-b-c corrective Wave 2 up is nearing completion with impulsive Wave 3 down due next. If last Wednesday’s low of 43.5 is broken on TMF, AND we get a signal change, I’ll look to add a few shares of TBT to the Model Portfolio.
That’s what I’m doing,
h
Market Signals for
07-27-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 14 Jul 2020 |
NASDAQ | POS | 18 May 2020 |
GOLD | POS | 23 Jun 2020 |
U.S. DOLLAR | NEG | 24 Jun 2020 |
BONDS | POS | 22 Jul 2020 |
CRUDE OIL | POS | 06 Jul 2020 |
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.
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