Professor’s Comments July 27, 2021
Posted by OMS at July 27th, 2021
The markets rose modestly yesterday with the Dow making a new all time high. The Dow closed 83 points higher at 35,144. The NASDAQ and S&P were up 4 and 11 points, respectively. Volume on the NYSE was moderate, coming in at 105 percent of its 10-day moving average. There were 123 new highs and 67 new lows. The number of new lows was the highest since early May when the Dow was trading 1,500 points lower. The past three days of rally in both the Dow and S&P have seen a contraction in new highs and an increase in new lows, which is often seen just prior to a significant top.
Not much changed with the technical picture after yesterday’s session. The Dow still appears to be rising in final wave five of sub-wave 5 of Wave 5 up. If so, it should be close to finishing. We will know once the Market Timing Indicators turn negative.
As the Dow, S&P and NASDAQ complete their fifth waves to a top, the DJ Transportation average continues to diverge from the Dow Industrials. The past week’s rally in the transports appears to be a wave 2 retracement rally. It too should be nearly complete. The transports made their high back in early May near the 285 level. Yesterday, even with the past week of rally, the transports are still well below the May high closing at 258. This major divergence between the Dow Industrials and the Transports is a classic Dow Theory Sell Signal. It was the primary technical signal that traders used back in the 1920s and 30s way before the invention of computers.
The Market Timing Indicators for the Dow remain Neutral. The same timing indicators for the S&P and NASDAQ remain Positive.
The Scalp Trading Indicators for the Dow (DIA), SPX (SPY), and NASDAQ-100 (QQQ) remain Positive.
The Dean’s List remains Neutral, as the inverse ETFs for the Russell 2K are still on the List. The Tide remains Negative. The fact that The Tide, my primary breadth indicator, continues to remain negative during the advance since 19 July is a major warning.
The 0-100 Sell Signal from last Thursday’s AIQ’s artificial intelligence algorithm remains unconfirmed. The market will need to have one or two significant down days, enough to produce a change in momentum, for this to happen. Again, with six recent unconfirmed AIQ Sell Signals on the board, students should watch the ST Indicators closely.
The Sector Ratio strengthened to 14-10 Positive after yesterday’s session. The top five strong sectors were Service (3), PharmaBio (3), Semiconductors (3), Computers (2), and Household Products (2). The top five weak sectors were Banks (-3), Energy (-2), Foods (-1), Telecoms (-1) and Transportation (-1).
Model Update: There were NO Changes to the Model. It remains 100 percent in cash.
Top Stocks: CROX, the Top Stock from Friday’s MWL, rose 83 cents on Monday. UNG, the #2 stock was up 17 cents. DECK, the #3 stock on the List was 4.98 points to 410.90.
In last weekend’s WSR, I discussed how several of the top stocks were developing Island Reversal Patterns. Those patterns are still in play and any significant downturn now will confirm the patterns and generate Sell Signals in those stocks. In other words, please be careful with your trading now. The overall trend of the market could be close to changing.
Gold: Gold (GLD) fell another 40 cents yesterday closing at 168.16. It remains on a Sell Signal. The counter-trend rally that started from the 29 June low appears complete.
The Bollinger Bands on GLD have been narrowing for the past 10 trading days, suggesting a Big Move is coming. So now with the ST Indicators on GLD on Sell Signals, I will be looking to short a few shares on the short-term bars only. The reason I say this is because there is still a possibility that gold could have another upward pop for wave ‘c’ up if wave 2 up decides to develop an a-b-c pattern. If this happens, gold the metal, could trade back to the 1,850 level. If the pop does not happen, gold should continue lower toward 1,670. BTW, a break of 1,790 in the metal would increase the odds that gold is starting wave 3 down. Students trading GLD should look for a break of the 29 June low of 164.01.
Bonds: The Timing Indicators on Bonds have turned Neutral, suggesting retracement wave 4 up has completed. If the ST indicators turn Negative, I’ll start shorting Bonds by buying TBT. Once the signals for Bond’s turn, they usually stay that way for a while. Again, I am estimating this to be a 3–4-month trade.
Crypto Currencies and Bitcoin Mining Companies: During the weekend I added Riot Blockchain (RIOT), Marathon Digital Holdings (MARA) and MP Materials (MP) to the data base for the Member’s Watch List. RIOT and MARA are two of the leading Bitcoin Miners. MP is an American rare-earth materials company, like RMEX, which is a global rare-earth / strategic metals ETF. RIOT ad MARA had big rally days yesterday which pushed them to the top of the MWL.
I will also be adding II-VI Corp (IIVI) to the List later today. One of the reasons I am interested in the stock is because of what Elon Musk said a few weeks back when Tesla stopped accepting Bitcoin as payment for its cars. Musk was concerned about the excessive amount of heat being generated by the thousands of computers used to mine Bitcoins. IIVI is a leading producer of gallium arsenide wafers, a technology that could significantly reduce the amount of heat generated by silicon chips.
By adding these stocks to the MWL, students will now be able to see how these innovative technologies stack up against other companies. BTW, I re-ran the MWL for several dates in the February period when RIOT was making its run. RIOT was consistently among the Top 5 Stocks on the List. But be careful…. these are EXTREMELY volatile stocks. How volatile? Well, when RIOT started to appear on the MWL back in early February, it was trading at 20. Three weeks later, it reached a high of 77.9. Two weeks later, it was back down to 34. Crazy huh? But if you like to trade the short-term bars, volatile stocks like RIOT and MARA can be very profitable. This is where the Scalp Trading (ST) Indicators are especially useful.
Both RIOT and MARA had a nice run up yesterday after Amazon announced it would be using Bitcoin…at least as at the start, to learn how to generate sales using crypto currencies. In the same article, they said they want to switch to crypto tokens, so I don’t know what that says about Bitcoin. Anyhow, both crypto miners are now in the data base so you can watch them and see how they rank.
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
07-27-2021
DMI (DIA) | NEG |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 20 Jul 2021 |
NASDAQ | POS | 21 Jul 2021 |
GOLD | NEG | 21 Jul 2021 |
U.S. DOLLAR | POS | 06 Jul 2021 |
BONDS | NEU | 26 Jul 2021 |
CRUDE OIL | POS | 26 Jul 2021 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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