Weekend Strategy Review June 27, 2020
Posted by professor at July 3rd, 2020
he markets fell hard on Friday. The Dow finished with a loss of 730 points, closing at 25,016, its lowest close of the month. It was down 856 points for the week. The NASDAQ lost 260 points on Friday and was down 188 points for the week. The disparity I mentioned last week between the Dow and the tech heavy NASDAQ continues. The Dow has moved to a Sell Signal while the NASDAQ remains on a Buy Signal, even after Friday’s large decline. We’re living in a world where the Corona 19 virus has changed the behavior of many people, keeping them cooped up at home watching movies on NETFLIX, listening to Apple music, and shopping on-line at Amazon. These big name FANG stocks to continue to profit while other, not so fortunate companies begin to falter. Volume on the NYSE continues to run significantly below its 10-day average, which like I said last week, is a major warning. Small investor optimism and financial advisor sentiment are also at EXTREME levels …another major warning. These volume and sentiment warnings are similar to what I saw back in 2001, just before the dot.com bubble burst.
Friday’s decline appeared to be the start of Wave 3 down. It was likely part or all of wave 1 of Wave 3 down. With the NASDAQ still holding on to its Buy Signal, it’s likely that the Dow will do some backing and filling (retracement wave 2 up) next week before the real carnage begins. Also, because the Dow still hasn’t broken below its 15 June low of 24,843, it’s still possible that Friday’s decline was wave ‘b’ down within an a-b-c pattern for Wave C of Major wave 2 up. If this is the case, the Dow could still rally next week to re-test the 26,000 level although the odds of this happening are low. The odds would be further reduced if the Dow breaks below 24,843.
The thing that’s causing me some concern after watching Friday’s decline is that it was not confirmed by the small cap stocks on the Russell 2K. One would think that the small cap issues would be leading the way down by now, but they too have not broken below their 15 June low yet. And if that low holds on the major indexes, we still don’t have a lower low to confirm a major trend change. This is one of the reasons the Model has not been adding to its ‘trial’ inverse position in DXD. It’s still way to early to be aggressively negative.
The Market Timing Indicators for the Major Indexes remain mixed. The timing indicator for the Dow has turned Negative while the same indicator on the NASDAQ remains Positive.
The Dean’s List is Neutral while the Tide, which is driven by stocks on the NYSE, is Negative.
The Sector Ratio finished the weak at 11-13 Negative. This is the first time the Ratio has been Negative since early April. So even though the market might not be ready to start its Major Wave 3 decline, the Sector Ratio is telling us the odds for a continuation of the Wave 2 rally are becoming slim. Pay attention to what’s happening in the Sector Ratio. If most sectors are now starting to move down, it will be extremely difficult for most stocks to buck the trend. The easier direction to trade is now down.
The top 5 strongest sectors were Energy, Retail, Material, Cap Goods, and Household Products. The top 5 Weak sectors are Utilities, Telecoms, Foods, Leisure and PharmaBio. BTW, the Relative Strength (RS) of the weak sectors is now starting to exceed the RS of the sectors on the strong list. Except for Energy o the Strong List which has a RS of 5, all the other sectors have RS ratings of 2 and 1. Most of the sectors on the Weak List have S ratings of -3 and -2. This tells me the overall strength of the sectors is beginning to weaken. Again, pay attention to the sectors. We saw how the market started to rally back in April when the sectors began to strengthen. Now the opposite is happening.
As long as I’m talking about the sectors, and the fact that we’ve had several new students join us recently, I probably should talk about the RS ratings. During the week, I received an email from new subscriber George L. George asked about the meaning of the RS rankings on the Dean’s List. As most of you know, the Dean’s List and my other Lists, have RS ratings attached to them. These ratings are simply a way to measure the relative strength of the individual stocks, ETFs, or Sectors on the Lists. The rankings just tell you the relative strength between the issues at any point in time. The rankings DO NOT tell you that stock or ETF ‘A’ is a better Buy than stock ‘B’. The Lists only tell you that one stock is stronger than the other …on that day. The thing that you should remember is that ALL stocks and ETFs on the Dean’s or Member’s Watch List are strong. But that still does not mean that they are a Buy. To determine if they’re a Buy, you need to use your indicators. So, when I see a stock or ETF that I’m interested in purchasing is on one of my Lists…I know its strong. Then I use my indicators to tell me when to pull the trigger. If the indicators are negative, I don’t buy the stock. I just simply wait until the indicators turn positive.
So, let’s go through the procedure: If the Market Timing Indicators are positive, I look to see which sectors are the strongest. Those are the sectors I want to be in. Then once I know which sectors are the strongest, I go to the Dean’s List and Members Watch List to select ETFs and stocks in those strong sectors. Finally, I use my indicators to trigger the trade. If the Market Timing Indicators are negative, I look at the top 5 weak sectors and select stocks or inverse ETFs with stocks I these sectors. When the markets are in a retracement mode or are nearing a major turning point, like they are now, I use my scalp trading indicators to take quick profits and NOT hold anything overnight.
Speaking of indicators, with the market falling like a rock yesterday, I once again used my Scalp Trading Indicators to hammer the market. I’m not going to tell you how well I did, but let’s just say I smoked two cigars. My new Scalp Trading Indicators continue to produce winning days, with some being major pay days. If you’re still not using my new indicators to trade this Bear Market, I MUST tell you that you’re missing the boat. Do yourself a favor and get my new video. You’ll be glad you did. DO NOT be discouraged by the new Bear. It will likely be with us for the next 3-5 years or more. The corona virus has changed the way we live. You just can’t buy and hold anymore. Buy and hold is DEAD! So, don’t sit on the sidelines and hope the market will come back. The odds of this happening are extremely low. No…get my new video and learn how to trade the market no matter which direction it moves in the future. Remember, I developed this new video for you…so you can make money during the coming decline. Stop being someone who watches or wonders what happened. Be someone who makes things happen. Get the video.
The Model continues to hold 800 shares of DXD, 400 shares of DUST, and a lot of cash. The Model continues to look for opportunities to buy shares of inverse index ETFs and now SCO, the inverse ETF for Crude Oil. These purchases could begin within the next few days, especially if the Dow starts to decline below 24,843. Above 24,843, the market is still in NO-MANS land, with a pattern that could still be part of a Wave 2 up. And we all know how unpredictable retracement Wave 2s can be.
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.
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