Weekend Strategy Review March 7, 2021

Posted by OMS  at March 8th, 2021

The markets fell on Thursday’s as expected, but then staged a strong rally on Friday.  The rally appeared to be wave ‘c’ of an a-b-c pattern I discussed in Thursday’s Comments when I said, “there’s still a chance for another Wave ‘c’ rally.”  I went further and said, “IF the Dow decides to rally, I expect the rally will end near or slightly above the 31,660 level.”  Friday’s high reached 31,580, so we could still see a bit more rally early next week before wave 2 up tops.  Once wave 2 completes, it should be all down hill after that. BTW, the a-b-c pattern that wave 2 formed since the 26 February low of 30,911 is called an ‘Upward Flat’.  These patterns make market analysis extremely difficult because the ‘b’ wave of the pattern often exceeds the previous Wave 1 down, so traders believe Wave 3 down has started when in fact, Wave 2 up was still not complete.  This is the reason I said I was still cautious.  However, now that the wave ‘c’ rally of Wave 2 up has occurred and appears to be nearing completion, I believe it’s time for us to focus on Wave 3 down.

So, with the above groundwork laid, I now want to talk about how I believe the next decline will likely unfold.  In last week’s WSR, I said I wasn’t sure if we would get an actual ‘crash’ or if it would be more of a slow, steady decline.  All that changed this week, when Thursday’s decline generated something called a ‘Hindenburg Omen’, a term that I don’t talk about much because it rarely occurs.  The thing about these Omens is that it takes some bizarre breadth numbers to produce them.  You need to have a negative A-D Oscillator with the total new lows and new highs above 70 with the lower of the two above 2.2 percent of the issues traded.  Also, the number of new highs cannot be more than 2X the new lows.  These conditions make it really tough for Omens to occur.  But when they do, you must pay attention.

The reason I say this is because every time a crash occurred; it was preceded by an Omen. Every time!  No exceptions.  The presence of an Omen does not guarantee a crash, but history shows that no crash ever occurred without one.  An Omen is good for 120 days, which means that there is now a high probability of a crash occurring between now and the beginning of June.   Students should remember that even after Friday’s strong rally, the Market Timing Indicators are still Negative.

The Dean’s List remains Neutral. The Tide remains Negative.

The Market Timing Indicators on the Dow (DIA) and QQQ are Negative. The Scalp Trading Indicators on the DIA are mixed as the volume indicator is negative with positive momentum.  The same indicators on the NASDAQ (QQQ) remain Negative.  The Q’s stayed in the down trend mode after Friday’s rally.

The Sector Ratio strengthened to 21-3 Positive after Friday’s session.  The top 5 strong sectors are Service, Banks, Energy, Autos, and Media. The three weak sectors were Computers, PharmaBio, and Telecoms. Continue to look for changes to the Sector Ratio next week.

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

Top Stocks:  Our Top Stock, NBR, had a monster session on Friday, gaining 12.51 points.  The stock was up 15.74 points for the week.  Other top stocks from last week’s (2/26) MWL like MRO and ADS, were also big winners with MRO up 1.88 points and ADS up 7.25 points for the week.  What bear market? 

Students should note that NBR, MRO and ADS were the only top stocks from last Friday’s MWL that stayed in the Trend Zone.  Others, like TDC which was in the #2 position was no longer a Buy on 2/26 as it moved out of the Trend Zone on 2/22.   When TDC moved out of the Trend Zone it was trading at 45.17.  On Friday, the stock closed at 41.31.  Pay attention to the Trend Indicators when you’re trading Top Stocks!  When the Trend ends, the party is over.

The numbers I’ll be watching next week are:  A potential rally to about 31,668 on the Dow.  After that, a move below 31,200 would likely signal that Wave 3 down has started.  Wave 3 down should take the Dow back down to the 29 January low of 29,856 with even lower potential after that.

The NASDAQ-100 should rally to about 12,800, possibly higher if this number is exceeded.  Max is the 13,350 level.  After that, look for a decline to about 11,500-11,600.

Pattern on the S&P is weaker than the Dow or NASDAQ.  Next week’s rally on the SPX, if we get one, should only approach the 3,870 level.  SPX closed at 3,842 on Friday, so the broader index should be close to completing its wave 2 up.  Because of this, I bought a few 345 March 31, 2021 SPY Puts near Friday’s close.  My target for the S&P remains near the 29 January low.

Gold:  I’m still waiting for slightly lower prices.  Several weeks ago, when gold was trading near 1,880, I said gold (the metal) would fall to the 1,700 level, possibly to 1,650-1,680.  Spot gold closed at 1,698.64 on Friday.  If the metal does not hold pattern support at 1,650, it could drop to 1,560.  Because of this, I’m being cautious and waiting for a signal change.  You never want to try to catch a falling knife.

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

03-08-2021

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.