Professor’s Comments February 18, 2021

Posted by OMS  at February 18th, 2021

The markets were mixed again yesterday on weak breadth and volume. The session was market by an increase in volatility as the Dow worked its way to a new high. The larger cap index finished with a gain of 97 points, closing at 31,6213. The NASDAQ and SPX did not make new highs, losing 82 and 1 point, respectively. Volume on the NYSE was moderate, coming in at 99 percent of its 10-day moving average.  There were 162 new highs and 10 new lows.  The number of new highs was about half of Tuesday’s total, which caused the Hi-Lo indicator to turn negative. Breadth was also negative during yesterday’s session with only 7 stocks advancing for every 10 losers.  This disparity in breadth is highly unusual in a market making new highs. It tells me that the rally in the Dow is either at or near its final top.

Yesterday’s early trading action on the S&P appeared to be the completion of a five wave down sequence for wave 1 down which was followed by a three wave a-b-c retracement for wave 2 up. Both waves can be clearly seen on a 15 minute chart of the SPY.  Yesterday’s early decline fell to a key support trend line near the 390 level before bouncing.  The reason I mention this again today is because IF the SPY breaks below the 390 level, it should test the 387.5 level which is last Wednesday’s low. Any decline below this level would be a lower low after last Wednesday’s high was established, which usually means the market is changing direction.  A break below yesterday’s low would also eliminate any near-term Bullish potential.  On the other hand, IF sub-wave 2 on the S&P did not finish with yesterday’s retracement to 393, it should finish today by moving a few ticks higher before wave 3 down begins.  

The thing to watch in the days ahead is for impulsive action.  If Wave 3 down is starting, it should be impulsive.  If its not impulsive, something else is happening.

Yesterday’s negative breadth caused three of the 4 breadth indicators that make up The Tide to turn Neutral.  So now the only positive breadth indicator is the Up-Down Oscillator. Students should note that the A-D Oscillator and Summation Index are now Negative, the first time this has happened since the current rally started on 2 February. A negative A-D Oscillator means that more stocks on the NYSE are declining than rising.

The DMI on the Dow turned positive on 5 February and remains Positive.  The Market Timing Indicator on the Dow (DIA) remains Positive. However the same timing indicator for the NASDAQ has turned Neutral. The Scalp Trading Indicators on the DIA remains Positive. The ST Indicator on the NASDAQ-100 (QQQ) has turned Neutral.  With the indexes now at target levels, students should pay close attention to any change in signals.  

The Dean’s List remains Positive.  The Sector Ratio remained at 22-2 Positive after Wednesday’s session.  The top 5 strong sectors are Media, Energy, Service, Semiconductors and Banks. The two weak sectors were Telecoms and Food Drug.  Continue to pay attention to the Sector Ratio as the week progresses.

The 0-98 Sell Signal kicked out by AIQ’s artificial intelligence algorithm on 12 February remains unconfirmed as the momentum remains positive.  As I mentioned in the WSR, I continue to pay close attention to the ST momentum indicator, especially if the Dow begins to break below yesterday’s low of 31,339.

Model Update:   There were NO Changes to the Model.  It remains 100 percent in cash.

Top Stocks:  All the Top 5 stocks pulled back yesterday.   Remember what I said yesterday about what I said when the top stocks begin to show signs of weakening.  It’s usually NOT a good sign for the overall market.  These are the stocks that led the market higher. When the leaders stop leading, pay attention.

Tesla (TSLA) finished 1.93 points higher yesterday, but I’d still be concerned about its narrow Bands now that the ST Momentum indicator is negative.

Apple (AAPL) dropped 2.35 points yesterday to 130.84.  Remember what I said yesterday about its negative HS Pattern.  APPL is now on a Sell Signal which will impact two of the major indexes.  APPL had been on a Buy Signal since 27 November; now it’s a Sell.  My near term target is the 110 level.  Pay attention.

Gold and Silver:  GLD fell another 1.91 points yesterday, closing at 166.33.  The ETF is now in the Down Trend Zone, so I would expect its decline to continue.  However near term GLD is oversold, so there might be a small snap back rally before the decline resumes.  Traders looking for an entry point to short gold might want to use the rally as an opportunity to establish a short position in GLD.  I still believe gold (the metal) will test the 1,700 level, possibly 1,650 before the decline completes.  BTW, IF gold does trade down to 1,650, I would view it as a screaming Buy.

I’m still hearing a lot of talk about silver.  This is mostly because silver has been moving sideways during most of February.  Traders seem to think that sideways movements always precede major rallies, like they did recently in stocks.  The thing they’re forgetting is that silver fell from 30 to 25 in early February, so the recent sideways movement is likely the Blade of an inverse Hockey Stick Pattern.  If this is the case silver could be trading in the low 20s in the months ahead.  I’m neutral on silver for now, even though it has positive ST indicators.

Bottom Line: Pay attention to yesterday’s lows.  If the DIA, SPY, and QQQ begin to break below 313.87, 389.33, and 330.17, you might want to start managing your money.

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

02-18-2021

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.