Professor’s Comments July 22, 2021

Posted by OMS  at July 22nd, 2021

In yesterday’s brief pre-opening Comments, I discussed how the Dow would likely trade up the 34,800 level in a wave ‘c’ up to complete an a-b-c pattern for retracement Wave 2 up.  That happened yesterday as the Dow reached a high of 38,820 before pulling back to close 297 points higher at 34,798.    The only problem is that yesterday’s rally was EXTREMELY strong in terms of breadth.   Breadth tends to weaken on the final wave of a counter trend rally, but with the NYSE demonstrating a 2.8:1 advance-decline ratio during yesterday’s session, breath was anything but weak.  Volume on the NYSE was also strong with up volume constituting almost 86 percent of the issues traded.  So, it’s possible that something else is going on. 

If yesterday’s rally was the completion of wave ‘c’ of Wave 2 up, it should be close to being over and Wave 3 down should start soon.  Otherwise, the Dow continues to rally today and moves significantly above yesterday’s high, the rally since Monday’s low will develop five waves which suggests it could have further to go.  How much ‘further’ is a big question now, but a re-test of last week’s high of 35,090 is not only possible, it’s likely.

Another reason I feel the Dow could have more rally to go is because yesterday’s rally filled the ‘gap’ from the 16 July close.  This tends to negate the view that last Monday’s opening gap down was a breakaway gap.  And without a breakaway gap down, the bearish case is weakened considerably.  I’m still bearish, but now that the Market Indicators for the Dow have turned Neutral, we need to be cautious and on our toes.  

Here’s the thing.  If the Dow continues to rally, and exceeds the 35,091 level, it will eliminate the Bearish divergence between the Dow and S&P that has been developing since the rally started.  A new high in the Dow would change the wave count making last week’s high a Wave 3 vs. a Wave 5.  This would mean that the Dow would have to pull back in a significant Wave 4 before rallying to a new high in Wave 5.  I other words, it could put off the bigger decline I see coming until early fall.  Yeah, I know…it’s complicated.  But I just wanted to warn you about what Yogi said: It ain’t over till it’s over.’  Or as I would say:  It ain’t over till the indicators turn Negative.

And right now, the Market Timing Indicators for the Dow are Neutral.  The same timing indicators for the NASDAQ are Positive.

The Scalp Trading Indicators for the Dow (DIA), SPX (SPY), and NASDAQ-100 (QQQ) have turned Positive.

The Dean’s List remains Neutral.  Yesterday’s rally caused several positive ETFs to move back on the List.  This tends to strengthen the Bullish case.  The Tide remains Negative.  

The Sector Ratio strengthened to 11-13 Negative after yesterday’s session.  The top five strong sectors were PharmaBio (2), Computers (2), Semiconductors (2) Service (1) and Household Products (1).  The top five weak sectors were Banks (-3), Energy (-3), Material (-2), Transportation (-2), and Foods (-2). 

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

Top Stocks:  UNG, the top stock from Tuesday’s MWL got as high as 13.83 before pulling back into the close.  The #2 stock, DECK was up 1.15 points as was #3 FTNT which gained 81 cents.  Other stocks in the top 5, LULU and ORCL also closed higher.  So once again, we see that on a day when the market rallies, the top stocks on the MWL lead the way higher.

Gold:  Gold (GLD) fell 0.63 cents yesterday and generated a new Sell Signal.  As I mentioned in previous Comments, the metal appears to be completing a counter-trend rally that started on 29 June.  With the new Sell Signal, I’ll start looking to short gold for a move down to the 1,750 level, possibly lower.

Bonds:  Bonds also fell hard yesterday with TMF shedding 1.14 points to 28.57.  Bonds still appear to be completing a retracement wave 4 that started from the 18 March low.  As of last night, the Timing indicators for Bonds (TMF) remain positive.  If they turn negative, I’ll start buying TBT, the inverse Bond ETF.  Again, wait for the signal to change.

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

07-22-2021

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The Hockey Stick Pattern
The Creation of Waves and Trends
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