Weekend Strategy Review May 10, 2020
Posted by OMS at May 10th, 2020
The markets continued to rally on Friday after the BLS released the May Jobs Report. The report said that the U.S. economy shed more than 20 million jobs last month, the largest month-to-month decline in history. Hardest hit were the leisure and hospitality industries. Unemployment rose to nearly 15 percent, an increase of 10.3 percent from March. Just three months ago, the unemployment rate was 3.5 percent, the lowest in a half-century.
But despite the extremely weak Jobs Report, the markets rallied. The Dow gained 455 points on Friday and was up 608 points for the week. The NASDAQ finished up 142 points on Friday and was up 515 points for the week. Since the Dow started its wave 3 rally, on Thursday, it’s up 667 points. So, here’s just another example of what really drives the markets….is it the news (a really bad jobs report) or is the overall Bullish pattern? Hmmm? That’s why we pay attention to the pattern and NOT the news.
Friday’s rally was accomplished on extremely light volume, the lowest since 19 February, the day before the market started its massive crash. Low volume rallies are always suspect. So, the low volume could mean that wave 3 up is nearing completion. The Dow might not reach its wave 3 target near 24,700. If this is the case, we’ll have to watch how the Dow pulls back during wave 4 as this will have an impact on where final wave 5 up of C up of Major Wave B up completes. If the wave 4 decline pulls back below 24,000, final wave 5 up will likely complete closer to the 25,000 level. The bottom line is that Friday’s extremely low volume is troubling, especially now that two of my key volume and Money Flow indicators, VA Percent and Custom Money Flow, have turned negative. Seeing these indicators turn negative is a warning, just like the warning they were giving in early February.
BTW, Friday’s low volume session also occurred on a day with an unfilled upside gap. Usually when this happens, the market trades flat to down the following session. So, we’ll need to watch for the start of the wave 4 pullback on Monday.
The Market Timing Indicators for the Major Indexes remain Positive. If they turn Negative during the next 5-10 days, you might want to take appropriate action. Remember, all during mid-to late January, I warned about the large Ending Diagonal that was forming for the past year. I talked about how it had completed five waves up and could begin to decline at any time. I gave you a target for the decline (21,700). So now I’m warning my students again. The current retracement rally has formed another smaller Ending Diagonal pattern. Once the final fifth wave of this pattern completes, the target for the pattern is 18,213 or lower…. possibly much lower. So, protect yourself!
The Dean’s List and The Tide remain Positive.
The Sector Ratio strengthened to 5-19 Positive after Friday’s session. The top 5 strongest sectors were Material (includes gold) Household Products, Cap Goods, Computers and Semiconductors. Students should pay attention to the Strong List now, especially the Cap Goods and the two technology sectors. If they begin to drop off the Strong List, it would be a good indication that its time to exit the long side of the market. The top 5 Weakest Sectors were Banks, Media, Real Estate, Insurance and Autos. If the market begins to head down, these are the sectors that will lead the way down. If you own stocks in these weak sectors, they will likely get hammered during the coming decline.
The Model continues to hold 40 shares of UCO, 600 shares of TBT, and 500 shares of GOLD with a cash balance of $76,147. The Model is waiting for the current rally to complete before re-establishing positions in inverse index ETFs.
Have a great weekend.
That’s what I’m doing,
Because I expect next week to be volatile, I will be doing two additional follow-on training sessions for students who took my Scalp Trading Class, one on Tuesday and another on Wednesday. If you did not attend a previous follow-on session and would like to attend, please send me an email and I’ll add your name to the List. If you already sent me an email, don’t worry…you’re already on the List for Tuesday’s session. Wednesday’s follow-on session will be for students who purchased the Scalp Trading video from AIQ. Details for both sessions will be sent out early next week.
BTW, the video of the Scalp Trading Class is still available. If the market begins to head down, you’re gonna wish you knew about the new indicators and techniques I describe in the video. While the Class describes the methodology I use to Scalp Trade, the same indicators and techniques can be used to Position Trade and for End-of Day Trading. Don’t be penny wise and pound foolish. Get the video!
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.
Market Signals for
|DOW||POS||05 May 2020|
|NASDAQ||POS||05 May 2020|
|GOLD||POS||07 May 2020|
|U.S. DOLLAR||POS||05 May 2020|
|BONDS||NEG||30 Apr 2020|
|CRUDE OIL||NEG||24 Feb 2020|
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.