Weekend Strategy Review October 10, 2021

Posted by OMS  at October 10th, 2021

The indexes drifted aimlessly on Friday finishing down on low volume. The Dow was down 8 points, closing at 34,746. It was up 420 points for the week. Technology stocks on the NASDAQ had a tougher time on Friday, dropping 75 points on the day.  They finished up 13 points on the week.

The patterns continue to suggest that a complex wave 2 retracement is nearing completion.  Wave 2s are always tricky to analyze and this one is no different. What initially looked like a simple a-b-c correction has developed into a more complex zig-zag or flat pattern. This has delayed the start of wave 3 down but won’t change the inevitable result.  The rally we have seen since the 1 October low was not unexpected. However, it was a lot stronger than I thought it would be. I estimated that the Dow could reach the 34,600 level. It got as high as 34,975. Like I’ve said in the past, predicting the high in any retracement wave 2 (or wave 4) is always tough. But that’s not what students should be focusing on this weekend. Students should now be focusing on the Big Picture. There’s trouble ahead! Big trouble!!

The fact that the Dow and the other index have been undergoing a series of strong up-down-up movements for the past week or so identifies the sequence as a complex Wave 2. The developing Wave 2 pattern is part of a larger Head & Shoulders pattern, which is a major topping or reversal pattern. Also, the EXTREME volatility and the divergences we are seeing are typical of what usually occurs at the start of a Major Bear Market. So taken together, they leave me with only one conclusion:  The next leg down, Wave 3 down, is right around the corner. But Wave 2 up MUST complete before this happens.

There remains a gap on both the Dow and S&P that could get filled early next week before prices begin to fall hard. This doesn’t have to occur, as the recent rally on the S&P was a 0.786 retracement. But given Friday’s sideways pullback, if the markets rally early next week, the gap near the 27 September close at 4,443 could get filled. Same for the Dow which has a gap near the 35,060 level.

On Friday, the Traders Index (Trin) on the NYSE closed at 0.86 which is extremely overbought. So, the market doesn’t have to rally now that it has met the requirement for a 0.786 retracement. The overbought Trin tells me that a lot of buying power in the retracement rally has been exhausted. But its only when the buying power is COMPLETELY exhausted that the market will begin to fall hard, and I don’t believe we have reached that point yet. But that point is getting close. Probably within a week or so.

If the markets do begin to fall hard next week, I’ll be using the same numbers I provided last week to confirm the start of Wave 3 down. The numbers are 33,800 on the Dow and 4,350 on the S&P. A close below these numbers will eliminate any remaining Bullish potential and set the stage for a major decline. 

The Market Timing Indicators for the Dow (DIA) and S&P (SPY) are Neutral after Friday’s session. The same timing indicators on the NASDAQ remain Negative.

The Scalp Trading Indicators for the Dow (DIA) and S&P (SPY) are also Neutral. The same indicators on the NASDAQ (QQQ) remain Negative.

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

The Sector Ratio strengthened to 14-10 Positive after yesterday’s session. The top five strong sectors were Energy (9), Banks (5), Leisure (2), Autos (2) and Financials (2).

The five weakest sectors were Retail (-3), Telecoms (-3), Consumer Products (-2), Semiconductors (-2) and PharmaBio (-2.).

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

There were no changes to the Market Timing signals on Gold, The Dollar, Bonds, or Crude Oil because of Monday’s trading action.

Top Stocks:  Have you been watching energy? On Friday, the price of crude oil hit $80 a barrel. Wow! They say elections have consequences. Last year about this time crude was near $40. Now its $80. But I don’t want to get into politics. All I want to do is point to you that on 15 September, our Market Timing Indicator for Crude Oil turned positive. The top crude oil stock on the Dean’s List was UCO, the 2X leveraged ETF for Crude Oil.  It was trading at 78.76.  Yesterday, UCO closed at 92.96.  The top Energy Exploration ETF (at the #4 position on the DL) was PXE. It was trading at 17.72.  Yesterday it closed at 20.67.

If you didn’t want to trade ETFs and preferred to trade the change in signal with energy stocks, you saw CLE and CVI in the #3 and #4 positions on the Member’s Watch List. CLR was trading at 42.66.  CVI was at 14.19.   Yesterday. CLR reached a high of 53.74 before closing a 53.43.  That’s a 26 percent gain in about than a month! During the same period, CVI moved to 18.78 for a 33 percent gain. That should easily pay for your next fill up at the gas pump.

The process is simple:  Watch for a change in one of the Market Timing Signals. Then go to one of the Lists to pick a stock or ETF from that sector (gold, oil, bonds, or cryptos). Buy the stock or ETF and hold it as long as the indicators remain positive. Bank the money.

BTW, did you do this for the recent change in signal on the cryptos? The Market Timing Indicator for cryptos turned positive on 4 October. GBTC was trading at 39.13.  Yesterday, GBTC closed at 43.34 after pulling back from a high of 42.75.  Did you do MARA? It was at 33.63 when the Market Timing Signal for Cryptos turned positive. Yesterday it closed at 39.49 after reaching a high of 39.98. That’s a 19 percent gain in 4 days! Hmmm?

Do you think you’re too late in getting into ETFs like GBTC and ETHE? Or stocks like MARA and RIOT? Think about what I said last week….

“From a wave count perspective, both Bitcoin and Ethereum appear to have completed Major Waves 3 up and 4 down.  If you look at a chart of GBTC, it suggests Wave 4 down was completed on 20 July when it made its low of 16.03.  The bounce off that low into early September looks like wave 1 up of Wave 5 up.  The retracement into the 29 September low of 26.6 looks like the bottom of wave 2 down of Wave 5 up.  So, if I’m correct on the wave count, wave 3 of Wave 5 up should be starting.  With positive indicators AND top of the List rankings, the crypto ETFs could be a nice place to be during the next few months.”

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.

Market Signals for

10-11-2021

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.