Professor’s Comments June 17, 2021

Posted by OMS  at June 17th, 2021

Yesterday, the Fed announced it would keep interest rates unchanged, near zero, but could raise them at least two times by the end of 2023.  The announcement caused traders to dump stocks as it was the first signal in years that the party on Wall Street brought on by low interest rates was coming to an end.  The Fed also said it would continue to purchase a whopping $120 billion per month of T-Bonds and Mortgage Bonds, which is their way of monetizing the nation’s debt.  In other words, they are printing money out of thin air which will lead to more inflation down the pike.

The news caused the Dow to decline 266 points which was enough for it to break below its major support trend-line that started last October.  It also caused the Market Timing Indicators on the Dow (DIA) to generate a Sell Signal.  The NASDAQ and S&P also had a down day, losing 33 and 23 points, respectively.  Volume on the NYSE was moderate, coming in at 102 percent of its 10-day average.  There were 185 new highs and 22 new lows.

The Dow closed at 34,032 which was well below the 34,334 level I was using to signal the start of wave 3 down.  My short-term target for the Dow is near 33,473 which is the 19 May low.  After that, my next target is near the 32,000 to 32,250 level.  The important thing about yesterday’s decline was the break in trend line support.  If the Dow continues to stay below its support trend-line in the days ahead, it likely means that the trend of the market is changing from up to down.  Please, do not ignore this break in trend-line support, especially if the Market Timing Indicators on the S&P and NASDAQ start to turn negative.

The Market Timing Indicators on the Dow are now Negative.  The Timing Indicators on the NASDAQ and S&P remain Positive.

The Scalp Trading Indicators for the Dow (DIA) have turned Negative.  The same indicators on the S&P (SPY) are Neutral.  The ST indicators on the NASDAQ-100 (QQQ) remain Positive. 

The Dean’s List has turned Neutral.  The Tide has turned Negative.

The Sector Ratio weakened to 17-7 Positive.   The top 5 strong sectors were Energy, Service, PharmaBio, Financial, and Retail. The Energy Sector continues to be the strongest sector with an RS rating of 5.  Service is second with an RS Rating of 4.  The rest of the top five sectors have ratings of 2.  The top five weak sectors were Consumer Products, Transportation, Telecoms, Media, and Household Products.  Continue to watch for increasing weakness in the Sector Ratio as the week progresses.

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

Top Stocks:  Most of the Top Stocks held up well in yesterday’s decline, with WKHS and DDS gaining ground.  But now that there has been a change in signal on the Dow (DIA), I will start looking for stocks from the Weak List rather than try to fight the potential trend change.  It’s still early in the turning process, as the S&P and NASDAQ have NOT generated Sell Signals yet.  So right now, I’m limited to either shorting Dow stocks or trading inverse Dow ETFs, like DXD or SDOW.   Right now, the only Dow stock in the Top 10 Weak List is Caterpillar (CAT) at the #7 position.  Home Depot is next, but you must drop down to the #27 position to see it.  In other words,…its early!

I’m still watching GSG, the commodity indexed ETF as a potential short.  Yesterday, the ETF fell 0.11 cents to 15.82.  This caused its ST volume indicator to approach the zero line.  Again, if the ST indicators turn negative, it will likely signal the up-trend in commodities is over.  I’m watching for a close below 15.40 to signal a change I trend.  Beyond that is the 50-day moving average at 15.15.  

Gold: Gold (GLD) got hit hard yesterday dropping 2.94 points to 171.11.  However, yesterday’s decline after a week of consolidation may have been the completion of a wave 5 low. For the past few weeks, I have been looking for gold to pull back to the 1,825 level, so yesterday’s low of 1,827 might have been the bottom.  If it is, then gold (the metal) should bounce back in the next few weeks to test the 1 June high of 1,917.  Right now, the ST indicators on GLD are negative. If they start to turn positive, I’m a buyer.  A close below 168.38 will negate my Bullish view on GLD.

Bonds:  TMF dropped 0.23 cents yesterday to 24.61.  If you recall, I have been avoiding Bonds because I thought the Positive signal from its Market Timing Indicator was a fake-out…. signaling the final leg of a wave 4 rally.   Turns out, I might be right, as the decline from the 11 June high is starting to look impulsive.  So, IF wave 5 down is underway, Bonds should continue to decline in five waves toward their wave 5 target which is near or below the 18 March low.

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

06-17-2021

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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