Professor’s Comments July 15, 2021
Posted by OMS at July 15th, 2021
The markets were mixed yesterday with the Dow and NASDAQ technology stocks rising slightly while small cap stocks on the Russell 2K were down. Volume on the NYSE was moderate, coming in at 107 percent of its 10-day average. There were 114 new highs and 36 new lows. Yesterday’s 45 point rally on the Dow after Tuesday’s 108 point decline appeared to be part of an a-b-c move for wave 2 down within final Wave ‘E’ up. If this is the case, the Dow should continue to decline to about the 34,600 level during the next few days before starting another rally (wave 3 up) which should re-test the 10 May high of 35,091. Right now, I’m estimating the final target for Wave ‘E’ up to be near the 35,450 to 35,600 level. However, depending on how the current wave 2 down plays out, (how low it gets) I might have to revise my final target. Also, my current target level does not have to be achieved, as Wave ‘E’ up could truncate at any time. However, the sideways triangle pattern that formed for corrective Wave D down suggests the 10 May high will be exceeded before Wave ‘E’ up is complete. Yesterday, the Dow closed at 34,993 after reaching a high of 35,069. One of the things I’m watching now is the breadth. Yesterday, even with the Dow finishing higher, the Hi-Lo oscillator turned negative again. This means that all four of the breadth indicators that make up The Tide are negative again. And once again, as we’ve seen for the past two weeks, the algorithm in AIQ generated another sell signal. This time the ER rating was 3-97 negative. It was the fourth ER sell signal generated since 2 July. However, as I’ve mentioned before, the sell signal is a two part signal that requires a momentum shift to be valid. And so far, the momentum in the markets has still not moved to the downside. Students who took my Scalp Trading Class can easily see this by looking at the volume and momentum indicators on the Dow, S&P, and NASDAQ. All the indicators remain positive. So, with a negative Tide, it tells me that any decline will likely be corrective….a corrective wave 2 down within final Wave ‘E’ up. This also means that IF the Dow pulls back to the 34,600 level +/-, it will likely present us with another buying opportunity. This assumes that the ST indicators remain positive. One other thing that needs mentioning is the EXTREME level of bullish optimism in the market now. This week’s Intelligent Advisors’ Survey showed the percentage of Bullish investors rising to 61.2 percent, a level it considers the ‘danger zone’. At this level, there are over four times as many bulls in the market as bears. The ratio is now at the highest level of Bulls to Bears since the crash of 1987. This is one reason the current Wave ‘E’ up does not have to reach my projected target level. There were NO CHANGES to the Market Timing Indicators after yesterday’s session. The indicators on the Dow, S&P, and NASDAQ all remain Positive. The Scalp Trading Indicators for the Dow (DIA), S&P (SPY), and NASDAQ-100 (QQQ) remain Positive. The Dean’s List has turned Neutral as shares of the inverse Russell 2k ETF are now on the List. The Tide has turned Negative. The Sector Ratio weakened to 12-12 Neutral after yesterday’s session. The top 5 strong sectors were PharmaBio with an RS rating of 2, Household Products (2), Computers (2) Service (1) and Financial (1). Students should note how the RS ratings of the strong sectors is weakening. They should also note how the highest ranked sector now only has an RS rating of 2. That’s a big change from what we were seeing a few weeks ago when all the top sectors had RS ratings 5 or more. The top five weak sectors were Banks (-2), Material (-2), Transportation (-2), Energy (-2) and Foods (-1). Continue to watch for weakness in the Sector Ratio as the indexes complete the final waves of their Bullish patterns. Model Update: There were NO Changes to the Model. It remains 100 percent in cash. Top Stocks: The only one of the top 3 stock from Tuesday’s MWL to advance during the past 2 days was Apple (AAPL) which jumped 3.51 points yesterday to 149.15. It was an easy pick as the other top two stocks, REMX and FSLR had negative ST indicators on the 10 min bars. So, if you were looking to trade something yesterday, all you had to do was go to Tuesday night’s MWL and choose between REMX, FSLR and AAPL. The choice was easy because the ST indicators on the 10s were negative on both REMX and FSLR. So, you had to look at #3 AAPL. At the open, AAPL gapped higher to 148.1, showing its strength. The stock continued to rise into the 11am period, getting as high as 149.32 before the volume turned negative. There was another entry just after 1:30 pm at the 148.94 level, for a ride of another 60 cents. So, even after the stock gapped higher at the open, there was still an opportunity to take about $1.80 from the stock. BTW, while Apple was an easy pick, execution the trade took some guts. It’s not easy to pull the trigger on a stock that gapped 4.07 points higher at the open. It’s NOT! But I wanted to point this out to you so the next time you see a top 3 stock on the MWL with positive ST indicators, you should take note. The ST indicators will keep you out of trouble in a day trade. Just make sure you pay attention to the indicators and follow the rules. Again, when you’re looking for a short-term trade, just go to the top stocks on the MWL and check out the indicators to see if they still qualify. Then simply use the ST indicators on the short-term bars to tell you when to enter and exit the trade. Gold: Gold (GLD) rose 1.82 points yesterday to 171.04. The rise was likely a continuation of the counter-trend rally that started on 29 June. If I’m right about this, gold (the metal) could retrace to the 1,850 level or higher before the rally is complete. Gold closed at 1,827.5 yesterday. I’m still on the sidelines with gold because the indicators are mixed. If they turn positive, I’ll start looking to scalp trade gold to the upside over the short term. I still believe that gold still has one more significant wave down to come before it completes its corrective pattern. On the other hand, IF gold rises above its 1 June high of 1,915, the bearish case for gold would be eliminated as the pattern would become extremely bullish. The rise would mean that the ‘handle’ portion of the Cup and Handle pattern I mentioned a few weeks ago is complete. This pattern projects a target of over 3,000+ for the metal in the months /years ahead. Its one of the reasons I’m watching gold now. Bonds: Still no change in Bonds. Bonds still appear to be completing a retracement wave 4 that started from the 18 March low. The Timing Indicators on Bonds turned positive on 28 June and remain Positive. TMF, the positive ETF for Bonds, is still on the Dean’s List with an RS rating of 2. All I’m doing now is waiting for a change in signal to indicate the start of wave 5 down. Again, no need to hurry into the trade. Wait for the signal to change. BTW, the one thing I like about trading Bonds is that once the signal changes, Bonds usually make for looooong term trades. If you look at the ST indicators on TMF, you can clearly see what I’m talking about. The current rally in bonds (wave ‘c’ up of wave 4 up) started on 7 June. That’s almost 5 weeks of rally that took TMF from the 23 to the 28 level. If you followed the ST indicators for Bonds and bought 1,000 shares of TMF back in early June, you’re now up about $5,000. If you did the same thing for the Dow, you’re just about flat even. So don’t just focus on the Dow or the other equity markets. Watch the signals for Bonds too! 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 07-15-2021
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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