Weekend Strategy Review October 11, 2020
Posted by OMS at October 11th, 2020
The markets rose moderately on Friday. The Dow finished with a gain of 161 points, closing at 28,587. The large cap index was up 904 points for the week. The tech heavy NASDAQ gained 160 points on Friday and was up 505 points for the week. Trading was extremely volatile during the week, mostly driven by news related to the Presidents health and further stimulus programs.
The interesting thing, at least to me, was that not much changed from an overall technical perspective. The Dow remains in a pattern that now appears to be final Wave 5 up of Major Wave B up. However, students of Elliott Wave principle should understand that while the odds now favor a Wave 5 scenario, which should see the Dow move above the 3 September high, the old Wave 2 scenario still can’t be eliminated. That’s because a Wave 2 can retrace all the decline from the 3 September high and still be valid. So far, the rally off the 24 September low has retraced 0.785 percent of the decline. So, IF, and it’s a Big IF, the decline is really a Wave 2, it could terminate close to current levels. However, given the strong momentum we’re seeing in the indicators and the strong Sector Ratio, I must believe that the current rally will push higher for at least a few more days, if not weeks. Students should not worry too much about the wave count but remain focused on the indicators and right now, the indicators remain positive.
Students should also understand that regardless of where either Wave 2 or Wave 5 up complete, the next major move complete should be down. The primary difference between the two waves is where they will finish which will determine their labeling. Wave 2 could finish any where between current levels and the 3 September high of 29,199. If it’s a Wave 5, the Dow should exceed the 3 September high and push on to the 30,300 level. If the Dow continues to rally next week, it will tend to confirm that Wave 5 scenario as the rally would be part of a small impulse wave 3 within Wave 5 up. This small wave 3 should complete slightly above the 30,000 level before a small retracement wave 4 takes effect followed by a final rally to the 30,300 level.
Because of the possibility that the overall pattern could still be a Wave 2 up, I must remain on Full Red Alert. The Dow is currently at 28,587 now. So, the final top could be anywhere between current levels and 30,300. That’s close enough that students should not get too comfortable with establishing aggressive positions to the long side.
The Market Timing Indicators for the Major Indexes are Positive.
The Dean’s List and The Tide are Positive.
The Sector Ratio remained at 23-1 Positive after yesterday’s session. Again, that’s way too positive for me to be trading the short side aggressively. As a minimum, I want to see the Ratio start to weaken, suggesting that the upside momentum is slowing. There is plenty of negative divergence in the indicators, but I would like to see this confirmed by the sectors. The top five strong sectors were Retail, Transportation, Leisure, Consumer Products, and Service. The only weak sector was Energy.
As discussed in yesterday’s comments, the Model went 100 percent long the NASDAQ-100 (QQQ) at yesterday’s open. The move was accomplished in two buys; one at the open and one when Apple (AAPL) exceeded the 115.55 level, confirming that the Q’s were heading higher. Students who purchased the Scalp Trading indicators can now follow the moves of the Model and anticipate the changes. The reason I did this is consistent with my philosophy of helping students learn. Like the Man once said, don’t just give a man a fish, teach him how to fish. That way he will be able to feed himself. He’ll also be able to help others feed themselves. That’s what education, and this website is all about…learning.
BTW, in last Wednesday’s follow-on training session, which I plan to do more of because of the positive feedback I received, I talked about using the volume indicators on Apple (AAPL). As I’m writing this, I looked at the move AAPL made in Friday’s extended hours session. If this move continues, APPL could have a nice run and take the Q’s with it. That’s because the stock has been in a sideways pattern since reaching what appears to be a Wave 3 high of 117.72 on 1 October. Sideways patterns are usually Wave 4s, so a move above 117.72 could see the stock retrace 50 percent or more of its recent decline. That would put the stock slightly above the 120 level as a minimum. Students long APPL and other FANG stocks should watch the Scalp Trading volume indicator on these stocks closely. If the volume goes negative, it won’t be long before price follows.
Watching….
That’s what I’m doing.
Have a great weekend.
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
10-12-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 07 Oct 2020 |
NASDAQ | POS | 09 Oct 2020 |
GOLD | NEU | 09 Oct 2020 |
U.S. DOLLAR | NEG | 09 Oct 2020 |
BONDS | NEG-T | 02 Oct 2020 |
CRUDE OIL | NEG | 23 Sep 2020 |
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.
Category: Professor's Comments, Weekend Strategy Review