Weekend Strategy Review October 4, 2020
Posted by OMS at October 4th, 2020
The markets fell hard at yesterday’s open on news that both President Trump and his wife tested positive for the Coronavirus. The initial decline of over 400 points was followed by a three wave retracement rally that pared the morning losses. Despite the rally, the Dow finished with a loss of 134 points, closing at 27,683. The large cap index was up 509 points for the week. Technology stocks on the NASDAQ were down 251 points on Friday but up 161 points for the week.
Yesterday’s early decline and retracement rally were likely waves 1 down and 2 up within Wave 3 down. It this is the case; it means that the rally from the 24 September low into the 1 October high for Wave 2 up is complete. It also means that stocks should begin to fall hard next week as impulse wave 3 down within Wave 3 down unfolds. As I mentioned in previous Comments, my target for Wave 3 down is near the 25,000 level. This is the level where the Bearish Ending Diagonal Pattern that formed during the previous Wave 5 rally began.
The key level to watch on the Dow next week is the 24 September low of 26,537. This is the level where Wave 1 down of the current Bearish sequence ended. If prices break below this low, the odds will increase significantly that 25,000 will be tested.
The alternate to this Bearish scenario is that the current decline could still be a Major Wave 4 a-b-c decline. Like I said previously, I don’t give this scenario much of a chance, but it’s still possible. A break below 26,600 would eliminate the possibility of a Major Wave 5 rally into the election.
One of the reasons I remain cautious (until the Dow breaks below 26,600) has to do with the indicators and the Sector Ratio. They’re still not convincingly negative. Yesterday, my custom VTI closed with a reading of 49.4, with a 2-period RSI of 46.97. That’s about as Neutral as you can get. Also, the VTI is still heading up. What I’d really like to see, before I start getting aggressively negative is to see the VTI start heading down. Then once this happens, I’d like to see it fall below 70, which would mean the Dow has entered the Down Trend Mode. Until this happens, I cannot say for sure that wave 3 of Wave 3 down has started. This is why it’s important for the Dow to start declining hard next week. The pattern suggests it will, but the indicators are NOT confirming the pattern …yet. BTW, during the 4 August into the 3 September top, the VTI stayed in the UP Trend Mode, telling me the rally had legs. But since the September high, the VTI has remained Neutral, which usually means the market is in the process of transitioning. So far, Waves 1 down and 2 up of this transition appear complete, so IF Wave 3 down is starting, it should be confirmed by the VTI moving into the Down Trend Mode. This hasn’t happened yet.
I remain on Full Red Alert as the market works its way through the current retracement rally.
The Market Timing Indicators for the Major Indexes are Neutral.
The Dean’s List is Positive, but the Tide remains Neutral.
The Sector Ratio was 13-12 Positive after yesterday’s session. The top five strong sectors were Retail, Service, Consumer Products, Transportation, and Leisure. Eight of the 13 Strong Sectors has RS ratings of 1 or zero, which tells me the strong sectors are not that strong and almost any down day could turn these sectors back to negative again. The top five weak sectors were Energy, Autos, Media, Banks, and Food.
There were NO CHANGES to the Model after yesterday’s session. The Model continues to hold trial positions of 1,200 shares of TWM, 1,600 shares of DXD, 800 shares of QID, and $43,651 in cash.
I used the Scalp Trading Indicators to generate a profit of $3,200 yesterday. I sold the shares of DXD, SQQQ and bought back the Apple short I established during Thursday’s session when the Dow became EXTREMELY oversold during its early morning lows. Then I re-established these short positions at higher prices later in the afternoon and held them into the close. I am now about 65-70 percent short in my personal trading account using inverse ETFs, mostly DXD and SQQQ with a few hundred shares short AAPL.
BTW, one of the reasons I like to trade Apple is because of its high volume. I have found that because so many people trade AAPL, the volume indicators tend to produce truer results. If you compare the Scalp Trading Volume Indicators on Apple with these same indicators on an ETF like QQQ, you’ll see what I mean. This is something that is important to me when I’m trading a 3X inverse ETF like SQQQ. So, when I’m looking to short the NASDAQ, I’m also watching the volume on APPL to see if its confirming what I see on the NASDAQ. Same for the divergences. I MUST see divergence in my momentum indicator the 30 min bars on APPL as well as on the ETF I’m looking to trade. Also, I have been using the 30s on APPL as my ‘high cover’. The trigger I’m using is a 4-day, 7 min chart. It’s been highly effective.
If you still are not using my Scalp Trading Indicators, you might want to re-consider purchasing them. This past week alone I had two sessions with profits over $1,700 and Friday’s $3,200 day. Making money in the market is not rocket science. You just need to have the right indicators and know how to use them.
BTW, I have made a few ‘tweaks’ to how I use the Scalp Trading Indicators that I want to share with the students who purchased the Class. These ‘tweaks’ are especially useful to those who have businesses and can’t be watching the computer all day. If you are interested in seeing these ‘tweaks’, please send me an email and I’ll hold another free training session next week.
I don’t have anything to say this weekend about gold, bonds, or the dollar. The patterns for these markets remain unclear.
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
10-05-2020
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 28 Sep 2020 |
NASDAQ | NEU | 28 Sep 2020 |
GOLD | NEG | 21 Sep 2020 |
U.S. DOLLAR | POS | 21 Sep 2020 |
BONDS | NEG | 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