Professor’s Comments December 31, 2019
Posted by OMS at December 31st, 2019
The markets pulled back sharply yesterday but remain above key support levels. The Dow finished with a loss of 183 points, closing at 28,462. The NASDAQ and SPX were down 61 and 19 points, respectively. Volume on the NYSE was moderate, coming in at 100 percent of its 10-day moving average. There were 97 new highs and 15 new lows.
By falling to the 28,428 level yesterday, the Dow dipped slightly below the Upper Trend Line of its rising Channel. This level should continue to be tested in the days ahead and once broken, the Dow should begin a sharp decline to the 27,325 level, the level where the recent wave 5 rally started.
It will be interesting to watch how the equity market performs today, especially today after 2pm when the Bond Market closes. Stocks always get a bit nervous when they trade without the benefit of the Bond Market, so what happens later today could be telling. I still expect that stocks will continue to bounce around within their narrow channels for the next few days where then begin to test the lower Trend Lines of these channels into the first full week of January. After that, things should begin to turn very negative. I continue to watch the 3,191 and 8,560 levels on the SPX and NASDAQ. A break of these levels would confirm that the decline I see coming has started.
Right now, the Dow, SPY, NASDAQ and Russell 2K remain on Buy Signals. However, yesterday’ sharp decline did cause The Tide to turn Neutral. The Dean’s List remains Positive.
The markets remain at a critical point in their patterns, showing negative divergences and sentiment readings that suggest they could begin to change direction in the days ahead.
Students should remember that the markets saw two MAJOR flashing Red Negative sentiment readings last week. Last week’s Put /Call ratio and the Bearish Sentiment from the ‘Dumb Money’ indicator were either at or close to the highest readings ever recorded. EVER! Like I said, reading like this can come early, but they are almost NEVER wrong. Pay attention! The last time the Put/Call ratio had a reading similar was on 27 January 2018, which was three days from the top of intermediate Wave 3 of the current Major Ending Diagonal Pattern. The Dow was down over 3,200 points less than a month later.
The Sector Ratio has started to weaken. Yesterday the Ratio fell to 20-4 Positive. Students should continue to watch for signs of continued weakness before becoming aggressive to the shot side. The Strongest Sectors were Energy, Semiconductors, Real Estate, Retail, and Healthcare. The Weak Sectors were Service, Telecoms, Autos, and Media.
Because the Sector Ratio continues to remain strong, I remain reluctant to get aggressive on the short side with the Model Portfolio and only have a few ‘trial’ inverse positions working. Once the Dow begins to break below its lower trend line, the Model will start becoming aggressive to the short side.
Gold (GLD) rose another 0.30 cents yesterday to 142.63. Gold remain on a Buy Signal and is now beginning to push (expand) its Upper Bollinger Band. Students should recall that this move was expected, as Narrow Bands usually mean that a Big Move is coming. In this case, the Big Move is likely Wave 5 up. BTW, because equities have still not broken below their Lower Trend Lines, I’m still holding off on adding to the Model’s ‘trial’ position in GDX. I still believe that gold will move higher once equities begin to decline.
Bonds (TMF) remain on a Sell Signal. Yesterday, TMF dropped 0.27 cents to 26.65. My VTI indicator for Bonds continues to flirt with readings that suggest Bonds will Trend Lower. This suggests that Bonds could be entering the next wave down within Wave 3 down. I say ‘could’ because the historic relationship between Bonds and equities is not favorable for a significant decline now. In the past, Bonds have performed well in a declining equity market as money tends to flow out of equities and into Bonds as they are perceived as a safe haven. However, IF the VTI indicator begins to trend, the Model will look to buy a small position in TBT, the inverse ETF for Bonds. The Model continues to view this potential purchase as a short-term trade only.
UCO (crude oil ETF) fell 0.10 cents yesterday to 20.75. Crude Oil remains on a weak Positive Signal. If the signal turns Negative (on UCO), the Model will add to its ‘trial’ position in SCO as the next wave down should drop the price of crude about 10 points, down to the about the 50ish level.
There were NO CHANGES to the Model after yesterday’s session. The Model continues to hold 1,000 shares of SCO, 1,000 shares of DXD, 300 shares of SQQQ, 500 shares of GDX with a cash balance of $74,167. The Model is currently up 30.2 percent since it started on 26 February 2019.
I continue to believe that positions established in inverse index ETFs from current or higher levels on the Dow will prove to be big winners in the months ahead once the current Wave 5 up rally completes. My initial target for the next wave down, after a break of 28,428, is the 27,325 level. After that, it’s the 26,600 level which should lead to a re-test of the December 2018 low of 21,713 once all five waves of the decline are complete.
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
12-31-2019
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 11 Dec 2019 |
NASDAQ | POS | 12 Dec 2019 |
GOLD | POS | 13 Dec 2019 |
U.S. DOLLAR | NEG | 09 Dec 2019 |
BONDS | NEU | 26 Dec 2019 |
CRUDE OIL | POS | 26 Dec 2019 |
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