Weekend Strategy Review September 20, 2020

Posted by OMS  at September 20th, 2020

The markets fell moderately on Friday. The Dow finished with a loss of 245 points, closing at 27,657.  The large cap index was down 8 points for the week.  The tech heavy NASDAQ lost 117 points on Friday and was down 60 points for the week.

Not much changed from a technical perspective during the week.  On Friday, the Dow re-tested the 27,500 level (27,488) for the fifth time since 8 September as it continues to develop the right shoulder of its Head & Shoulders Pattern.  A break of the ‘Neckline’ at the 27,500 level next week should increase the downside momentum. My target for the decline is near the 25,000 level.

The S&P 500 and NASDAQ both made new lows since topping on 3 September. The SPX is now at 3,292 after topping at 3,588.  The NASDAQ is now at 10,640 after topping at 12,074.

Again, the key support levels for these indexes are Dow 27,500, SPX near 3,300, NASDAQ near 10,730.  As of Friday’s close, the S&P and the NASDAQ are slightly below their respective ‘Neckline’ support levels.  The Dow remains slightly above its ‘Neckline’ support level which means we still don’t have confirmation between the main indexes.

Because this non-confirmation, there is still a possibility that the decline in the Dow since 3 September could be considered a minor wave 4 of Major Wave 5 up.  If the Dow begins to rally next week instead of breaking below its ‘Neckline’ support, the index could still re-test the early September high. A decline below the 27,000 level would eliminate this alternate scenario.

I remain on Full Red Alert as I wait for a break of ‘Neckline’ support in the developing H&S patterns.

The Market Timing Indicators for the Major Indexes are now Negative. 

The Dean’s List and Tide have turned Negative.

The Sector Ratio weakened slightly on Friday to 20-4 Positive. The fact that the Sector Ratio still remains strong is a concern. If the market begins to break down, the Sector Ratio should start to weaken significantly. A negative Sector Ratio would confirm the downtrend is underway. Also, my composite chart of the S&P Sectors remains Neutral, with the DMI preventing a negative signal change. If the sector chart turns negative, it would be further confirmation that a significant decline is occurring. The top five strong sectors were Service, Consumer Products, Transportation, Service, and Retail. The four weak sectors were Semiconductors, Computers, Energy, and PharmaBio.

There were NO CHANGES to the Model after Monday’s session.  The Model continues to hold trial positions of 1,200 shares of TWM, 1,600 shares of DXD, 400 shares of DUST, 800 shares of QID, and $35,531 in cash.  The Model continues to look for opportunities to buy shares of inverse index ETFs.

Gold (GLD) rose 0.42 cents on Friday, closing at 183.20.  Gold remains on a Neutral signal as its triangle pattern continues to form.  Students should continue to watch for a breakout from the triangle as prices could move significantly higher or lower from current levels, depending on the direction of the breakout. We should know the direction of the next move in gold sometime next week.

I continue to watch the Dollar for signs that a bullish move is starting.  Right now, the chart suggests its next major move should be up which means gold should begin to fall.  However, with neutral signals, the Dollar could still make one more wave down to about the 92.5 level before rising above 94.  I’m just being patient and waiting for a change in signal.

BTW, a rally in the Dollar should be accompanied by a decline in the Euro….and this is exactly what the current chart of the Euro suggests.  The Euro topped on 1 September at 1,2011.  Since then it has been forming a complex pattern which could have been a Bullish triangle or a negative Head& Shoulders pattern with neckline support near the 1.1780 level.  Friday was an important day for the Euro as it broke below the 1.8000 level which if means the triangle pattern is no longer valid.  Had it held above 1.800, it would have meant the European currency was likely heading higher.  But the lower trend-line did not hold, so now I must favor the Bearish H&S case for the Euro and higher prices for the Dollar. I still want to see the signal change before placing my bets.

Bonds remain on a Neutral signal.  It’s likely that Bonds are in the process of completing a small corrective wave 2 within a larger Wave 3 down. TBT, the inverse ETF for Bonds, rose slightly yesterday (+0.01 cents) at 15.67.  A rally above last Wednesday’s high of 15.77 in TBT would increase the odds that the next Major Wave down in bonds is underway.  Again, I’m waiting for a signal change before making a commitment to shorting bonds (by buying TBT).

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

09-21-2020

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.