Professor’s Comments – Important Level to Watch September 8, 2020

Posted by OMS  at September 8th, 2020

One of the things students should be watching during the next few days is last Friday’s low of 334.87 on the SPY. The reason I say this is because last Thursday and Friday, the volume on that index was the highest since 11 and 12 June.  Before that, you need to go back to 21 and 24 February, just before the market crashed.  The difference between these two periods is that in the first case, June, the S&P held the 2-day volume spike low. It did NOT crash.  In February, the SPY closed below the 2-day spike low. So, whenever you see two consecutive days where the volume spikes, you must pay attention to the spike low. It can be of critical importance.

There’s also another reason I want you to pay attention to SPY 334.87 on a closing basis.  During the weekend, I had a chance to look at one of the algorithms I use to highlight a few stocks to trade.  I noticed that on Friday, 4 September, the algorithm, which is usually extremely quiet, highlighted 56 stocks as Sells.  This is very unusual as it usually only highlights about 2-3, if any.  So, I started to look the days prior to Friday. On 3 Sept, it highlighted 39 as Sells.  On 9/1 there were 27, so the number of Sell Signals is increasing. Hmmm?

I then went back to the two periods where was just starting to rally to see what the algorithm did.  For reference, the DMI on the Dow turned positive on 7 April.  During the 4 days surrounding 7 April, the algorithm highlighted 21, 19, 48 and 48 stocks.  This led to a 5,000 point gain in the Dow into early June before the market took a breather.

The algorithm became active again in early July when it highlighter 29 to 31 stocks each day as Buys during the period from 6/30 to 7/6.   This led to another 3,000 point gain in the Dow into early September.  

So, after reviewing this amazing performance, I was anxious to see what the algorithm was doing in February, just before the crash.  Here are the numbers:   

Now remember, this algorithm is usually incredibly quiet.  But on 2/19, it highlighted 19 stocks in the S&P 500 data base as Sells.  It got up to 25 on 2/21. Then, on 2/24, the day the Dow dropped 1,031 points in one day, the algorithm highlighted 214 stocks as Sells.  Less than a month later, the Dow was down over 10,000 points!

So, with Thursday/Friday’s volume spike and the algorithm highlighting 56 stocks with Sell Signals, you can be sure I’m watching 334.87 on the SPY this week.  

That’s what I’m doing,

h

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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