Weekend Strategy Review June 7, 2020

Posted by OMS  at June 7th, 2020

The markets catapulted higher on Friday after the BLS announced that 2.5 Million people went back to work.  Hmmm?  I wonder how much of this number was fudged.  Remember, a good portion of the Jobs Report number is a guess…a made up number, so there’s no telling how much truth there is in a number so large.  But still, even if the number is real, that still leaves about 38 Million people NOT working. Hardly the kind of number that would justify an 800 plus point rally. A much better explanation is the fact that after a sideways wave 4 triangle, an extended wave 5 up was not only likely, it was expected! (See my comments in last weeks WSR)

The Dow finished with gain of 829 points, closing at 27,111. It was up 1,728 points for the week.  The NASDAQ gained 198 points on Friday and was up 324 points for the week.

Friday’s early impulsive rally appeared to be final wave 5 of Wave C of Major Wave B up. With Friday’s rally, Wave C up has now completed all five waves of the 3-3-5 retracement pattern.   After forming a wave 4 sideways triangle for most of late May, Wave C appeared to need one more rally leg to complete the five wave pattern.  This was achieved on Friday as the Dow rallied to 27,338, which was slightly above the Fibonacci retracement level of .786.  A retracement of .786 is considered a full retracement, which is a very unusual event for a Wave B.

From a technical perspective, by rallying to 27,338 intraday, the Dow filled the gap from the close on 4 March.  So, if Friday’s rally was indeed wave 5 of the extended rally, it can be considered complete. Otherwise, if the rally was only wave 3 of the pattern, the Dow should experience a small pullback early next week, followed by another small rally to complete the pattern. Doesn’t really matter much as I don’t expect Major Wave B up will complete much above Friday’s high.   

One thing I should comment on was Friday’s volume. It was EXTREMELY high, coming in at 14.5 Billion shares.  This was the highest volume since 4 March which marked the top of the 4 day counter trend rally within the February – March crash wave. Many times, high volume days like Friday’s produce an exhaustion top, so we’ll need to see if this is the case next week.  Because Friday’s rally started with a large gap up, if the Dow opens lower than 26,837 on Monday, it will produce an island reversal candlestick, a pattern that almost always marks a major top.  So, Monday’s open should be interesting to watch.

When I saw the Dow move above the 27,138 Fibonacci retracement level, I began establishing a few trial short positions using inverse index ETF, both for the Model and my own trading accounts.  BTW, even though I sat out most of Friday’s early rally, my trading account was still up over $750 by day’s end.  My Scalp Trading indicators delivered once again.  Looking back at the past week, every day except Wednesday was a profitable for me.  Wednesday’s trading produced a small loss of $30, as I got caught on the wrong side of the indicators when I had to do a chore for Marcia. I was up about 200 bucks before the chore. The other days produced profits ranging from $200 to $1,200, so overall, it was a good week.

The Market Timing Indicators for the Major Indexes remain Positive.

The Dean’s List and The Tide also remain Positive.

The Sector Ratio stayed at 24-0 Positive after Friday’s session.  The top 5 strongest Sectors were Energy, Material, Autos, Media, and Leisure.

Last week I mentioned that if you wanted to trade a potential wave 4/5 move higher, you might want to focus on stocks in the strongest sectors and stop worrying about what the market is going to do.  If you get a chance this weekend, you might want to look at how stocks in last week’s strongest sectors did.  If the market begins to trade lower next week, you might want to watch to see which sectors begin to move to the Weak List.  Again, these are the sectors that will lead the market lower.  Right now, the four weakest sectors on the Strong List are Food/Drug, PharmaBio, Telecoms, and Computers. 

Gold fell (GLD) 3.27 points on Friday to 158.01 as traders moved out of gold and into equities.  Two weeks ago, when the HUI was trading at 281, I talked about the mining index falling to 240.  O Friday, the index fell to 250 before rallying to close at 161. During the same period GOLD has fallen from 28.31 to 23.29.  I’m now watching my Scalp Trading indicators for a Buy Signal.

Bonds continued to fall during the week as equities rallied.  TBT, the inverse ETF for Bonds rallied to a high of 18.3 where it appeared extremely overbought.  While my target for TBT remains a few points higher, the overbought conditions were enough for me to book a profit on TBT and re-evaluate the trade later this week.  As things turned out, I sold a half position on TBT at 18.20 and was stopped out of my remaining shares a few ticks later.  After I sold TBT, I started to buy a trial position in DXD for the Model.  I also bought shares of DXD, TMF and QID for my own trading account. My average cost for DXD was 17.30.  I also bought 10 DIA 18 September 210 Put Options.  Cost was 2.52 per contract for a total options investment of $2,520.

After selling its shares of TBT and buying DXD, the Model now holds 40 shares of UCO and 1,200 shares of DXD with a cash balance of $77,185. Depending on what happens next week, the Model will look to increase its position in DXD, and establish positions in TWM and QID, the inverse ETFs for the Russell 2K and NASDAQ-100.  If gold continues to pull back causing the HUI to approach the 240 level, the Model will look to establish positions in GDX and GDXJ.

Have a great weekend,

That’s what I’m doing,

h

Market Signals for

06-08-2020

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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.