Weekend Strategy Review March 14, 2021

Posted by OMS  at March 14th, 2021

The Dow opened higher on Friday and continued higher while the NASDAQ and S&P opened lower and continued to trade down or flat.  The Dow finished with a gain of 293 points, while the NASDAQ lost 79 points.  So, the disparity between the indexes continues.  On a day when the Dow gained 293 points, the A-D ratio on the NYSE was only slightly positive closing at 1.18 to 1.  Volume was also low, with only 11.8 billion shares being traded on the NYSE making it the lowest volume day of the year.  When I look back and compare these numbers to previous Bull Markets, they tell me the current Bull is the late stage of its development. Next week should see a small rally in the Dow and NASDAQ to complete their respective patterns, but I really don’t see much rally after that.  When I look at a 30 min chart of the Dow, it’s clear that the rally since 4 March has been accomplished in five waves up.  Friday’s high of 32,793 might have been the top, but the pattern suggests it could extend to the 32,900 – 32,950 level.   The later would make wave 5 equal to 0.618 times the previous wave 1.  But don’t focus on the Dow.  Pay attention to what’s going on with the NASDAQ, especially the large tech stocks.

The reason I say this is because the NASDAQ has declined in five distinct waves since its high on 16 February into the 5 March low.  The current rally in the techs appears to be retracement wave ‘a’ up of Wave 2 up.  So far, the retracement has carried to the 13,434 level which means that after a small pullback, there should be once more rally wave (wave ‘c’ up) to complete the pattern for Wave 2 up.  I would expect wave ‘c’ up to complete slightly above Thursday’s high of 13,434.  BTW, this also fits with my projections for TSLA, which could rally to about 742 to close the gap formed on 24 February.  Apple (AAPL) also appears to need a small rally to complete its retracement pattern, but it shouldn’t go beyond its 50-day moving average near 127.

Students should take a quick look at the Daily charts for both TSLA and AAPL as they try to and understand what’s been happening in the markets.  The charts show that both stocks have been oscillating between their 50 and 200 day moving averages.  They’re trapped in a box so to speak.  Once they break below the 200, the lower average, the down trend will start. Remember what I used to say in Class.  “No institution will touch a stock once it begins to trade below its 200-day moving average.”  So right now, both TSLA and AAPL are in the twilight zone, trading between the 50 and 200.  If you look at a chart of the NASDAQ-100 (QQQ), you will see the same thing.  This is the reason the NASDAQ has not tanked yet. It’s still trapped between the moving averages forming the ‘Blade’ of its Hockey Stick Pattern.  But once retracement Wave 2 up completes, probably sometime next week, the NAS will begin to decline and then test and break below the 200.  Then once prices start trading under the 200, it will pull the 50 below the 200 and the institutions will start selling.  BTW, my target for the NASDAQ remains near the 21 September low of 10,519.  Because the NAS is currently in a corrective rally mode, it will take a decline below 12,600 to confirm that Wave 3 down is underway. The NAS closed at 13,320 on Friday.

Those five waves down on the NASDAQ since the 15 February high are the key.  Again, don’t worry too much about the 30 stocks in the Dow and the fact that they are making new highs. The 5 FAANG stocks on the NASDAQ plus TSLA led this market higher and now Amazon (AMZN), Netflix (NFLX), Facebook (FB), and APPL are all trapped and poised to lead the market lower.  So, watch the NASDAQ.  It’s the key to understanding how the Bear Market will develop.

Students should also remember that there is an official Hindenburg Omen on the Board.  This means that once the current rally phase completes, the probability for a general market crash remains high.

The Market Timing Indicators on the Dow remain Positive.  However, the same Timing Indicators on the NASDAQ remain Negative. The Scalp Trading Indicators on the DIA are Positive while the same indicators on the NASDAQ (QQQ) remain Negative.

The Dean’s List remains Neutral. The Tide has turned Positive.  

The Sector Ratio strengthened to 24-0 Positive after Friday’s session.  The top 5 strong sectors were Retail, Media, Energy, Service, and Autos. There were no weak sectors.  Continue to look for changes to the Sector Ratio as the week progresses.

Model Update:   There were NO Changes to the Model.   It remains 100 percent in cash.  Remember, the Model is based on the NASDAQ-100 (QQQ) and right now the Q’s remain on a Sell Signal.

Top Stocks:  Not much happened with the Top Stocks during the week. NBR, CLR   and MRO are the only stocks from last Friday’s Top Five MWL that remain in the Trend Mode as most of the energy stocks pulled back.  The Top Five stocks on the current weak list are:  WKHS, DDD, FSLR, TAN, and NBIX.  TSLA is #6, AAPL is #11.  NVDA is #14.  EA is #21.  I find it interesting that some of the big names in the EV/AV sector like WKHS, TSLA, NVDA, EA are now near the top of the weak list. 

Gold:  I’m still watching for a bottom in gold.  I wasn’t sold on the recent pop in gold (the metal) to the 1,724 level.  It’s possible that the recent rally could extend to about 1,770, but without a change in indicators, I still believe a retest of 1,670 is in the cards.  If the 1,670 level is broken, gold could drop another 100 points before the real bottom is in.  I’m still on the sidelines for now. 

Bonds:  Same for Bonds.  Bonds made another low on Friday and appear to be nearing completion of Major Wave 3 down.  If this analysis is correct, Bonds could be ready to start their Major Wave 4 up rally.  If the equity markets start to roll over, Bonds could be a nice place to be. Continue to watch Bonds.

Have a great weekend.

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

03-15-2021

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.

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