Professor’s Comments February 11, 2021
Posted by OMS at February 11th, 2021
The markets finished mixed yesterday after a very volatile session that saw the Dow reach a high of 31,511 before pulling back to close 62 points higher at 31,428. The NASDAQ and SPX lost 35 and one point, respectively. Volume on the NYSE was moderate, coming in at 92 percent of its 10-day average. There were 343 new highs and 62 new lows.
After reaching its early high, the Dow began a five wave pullback followed by a late afternoon rally that took the form of an a-b-c retracement. It’s possible that the pullback and late rally were waves 1 down and 2 up of a new Bearish pattern. If this is the case, wave 3 down should begin soon. A decline below yesterday’s low of 31,221 in the next day or so would suggest the current rally is over. The Bearish number I’m using for the S&P is 3,884.
Yesterday I mentioned GE’s earnings and how a disappointing number would lead to lower stock prices on Thursday and Friday. As things turned out, GE announced better than expected earnings, but gave guidance that was less than stellar. Apparently, the reason for the guidance warning was related to a lack of semiconductors that could put pressure on future revenue and earnings. Once the street heard the guidance, the good earnings didn’t matter anymore and started selling the stock. Like I used to say in Class, don’t pay attention to what the company says about earnings; pay attention to what happens to the price of the stock after the announcement. In this case, the stock sold off. In the past, this has been a bad omen for both GE and the overall stock market for the next two sessions and the following month.
GE’s earnings are not the most important piece of news out there but coming at a time when the Dow reached my target of 31,500+, it’s something to watch, especially after yesterday’s early decline and later rally. In other words, IF the Dow begins to sell off later today, the thing to watch will be for impulsive action. Impulsive action to the downside will be my signal that wave 3 down is starting.
If on the other hand, the Dow does not start an impulsive decline, it means that yesterday’s low was wave c of sub-wave 4 down with sub-wave 5 taking the Dow to another new high before the pattern is complete. At this point, this is my alternate scenario.
The DMI on the Dow turned positive on 5 February and remains Positive. The Market Timing Indicator on the Dow (DIA) and NASDAQ remains Positive. The Scalp Trading Indicators on the DIA and QQQ remain Positive. With the indexes now at pattern target levels, students should pay close attention for any change in signals.
The Dean’s List and The Tide remain Positive. The Sector Ratio remains at 23-1 Positive after Monday’s session. The top 5 strong sectors are Insurance, Retail, Service, Media, and Energy. The only weak sector was the Telecoms. Continue to pay attention to the Sector Ratio as the week progresses.
Model Update: There were NO Changes to the Model. It remains 100 percent in cash.
Top Stocks: Three of the top five stocks pulled back yesterday. #4 SBNY (up 1.3 points) and #5 BIDU (up 9 points) were the only two gainers. The reason I mention this is because all five top stocks are in rocket ship patterns. Any change in momentum at this point on a stock like #1 DDD or #2 TDC could cause the current trend to end, so pay strict attention to the ST Momentum indicator. Also, because rocket ships can and do flame out and come crashing back down to earth, there’s nothing wrong with taking a few bucks off the table and letting the rest ride with a close stop. Like I always say, “No stock, no matter how good goes to heaven.
If you want to see what a rocket ship ride and flameout looks like, just pull up a chart of Gamestop (GME). Fifteen trading days ago, (21 January) it was trading at 43. It shot up to a high of 483 on 28 January. Yesterday it closed at 51.2. So, if you are riding a rocket ship, you might want to print out a chart of GME and post it near your computer so you never forget what can happen.
BTW, you might also want to look at what happened to former Top Stock Tesla (TSLA) once its momentum indicator showed the trend ended. Yesterday the ST Volume Indicator on TSLA turned negative…..pay attention! The stock now has narrow bands with a negative volume indicator and a diverging momentum indicator. PAY ATTENTION!
That’s what I’m doing,
h
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
02-11-2021
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 05 Feb 2021 |
NASDAQ | POS | 03 Feb 2021 |
GOLD | NEG | 08 Jan 2021 |
U.S. DOLLAR | POS | 27 Jan 2021 |
BONDS | NEU | 27 Jan 2021 |
CRUDE OIL | POS | 11 Nov 2020 |
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