Professor’s Comments January 16, 2020

Posted by OMS  at January 16th, 2020

The markets rallied hard early and then pulled back into the close.  After being up 188 points in the opening half hour, the Dow spent the rest of the day in a choppy decline finishing 91 points higher at 29,030. The NASDAQ and SPX were up 7 and 6 points, respectively.  Volume on the NYSE was moderate, coming in at 106 percent of its 10-day moving average.  There were 271 new highs and only 7 new lows.

Yesterday’s early rally was the Big Move predicted by Tuesday’s small change in the A-D oscillator.  There was another small change in the oscillator yesterday, so we need to be on the lookout for another Big Move within the next 1-2 days.

Given that yesterday, 15 January, was a potential market turn date, it’s possible that yesterday’s high was the top.  We’ll know in the next few days.  In Tuesday’s comments, I mentioned how important it was for the Dow to stay below the 28,927 level for the immediate Bearish case (wave 3 down) to begin.  Otherwise, the Dow would likely rally to retest the recent high of 29,009 before declining.  That’s what happened.

Yesterday’s rally identified Tuesday’s decline as wave 4 down of the rally that started on Monday.  This means that yesterday’s rally was likely wave 5 of that rally, the final wave in the sequence.  So, IF the Dow stays below yesterday’s high of 29,127.59, there’s a good chance the top is in.

There is a trend line connecting the lows of the recent rally at the 28,950 level.  A break of this trend line will likely signal the start of the next decline.

BTW, after yesterday’s session, the 21-day Put/Call Equity ratio on the CBOE declined to 0.52, its lowest level in six years. Same for the P/C Ratio on the CBOE Composite.  It is now at the lowest level since its Major Wave 3 top in January 2018.  In other words, Bullish sentiment is now at EXTREME levels.  Students should realize that it’s EXTREMELY dangerous to be trading the long side when so many traders are making Bullish bets. They’re almost always wrong!

The Dow, SPY, NASDAQ, and Russell 2K remain on Buy Signals.  The Tide and Dean’s List remain Positive. 

Students should remain on FULL RED ALERT and look for a decline below the lower trend line on the Dow now at the 28,950 level.  A decline below this level will likely start the market moving lower and should result in a change to the market timing indicators.  Any negative turn in the indicators now will likely signal that the top is in and the next Major Bear market is underway.

The Sector Ratio remained at 17-7 after yesterday’s session.  The Strong Sector List was led by Household Products, Healthcare, PharmaBio, Real Estate, and Leisure.   Again, seeing Household Products leading the Strong List is NOT comforting to me.  The Weak Sector List was led by Banks, Service, Autos, Energy, and Telecoms.  If the market begins to move lower, the stocks in sectors on the Weak List should lead the market lower.

Model Portfolio:  Just after yesterday’s open, the Model bought 400 shares of TZA at 34.08 and 300 shares of VXX at 13.55.  TZA is an aggressive inverse ETF playing the small cap stocks to decline. VXX is an aggressive volatility ETF that should rise if stocks fall.  In addition to yesterday’s purchase, the Model continues to hold 1,500 shares of DXD, 300 shares of SQQQ and 500 shares of TMF with a cash balance of $57,890.  The Model’s gain continues to hover just under 29 percent.

Gold:  The market timing signals for Gold turned positive yesterday. With the change in signal, it’s possible that corrective wave 2 down in gold has finished and wave 3 of 5 up is about to begin.  If this is happening, the Model will look to re-establish a small position in gold and/or gold mining shares.

Bonds:  Shares of TMF rose 0.55 cent yesterday to 28.22.  The rise could have been the long anticipated breakout from its 4+ month triangle.  If the rally in Bonds continues during the next day or so, the Model will look to add to its ‘trial’ position.  The market timing indicators AND the DMI are now Positive for Bonds (TMF). My near term target for TMF is the interim high between the first two lows of the triangle which is at 32.73.

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

01-16-2020

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.