Professor’s Comments March 2, 2021
Posted by OMS at March 2nd, 2021
The markets reversed course and continued sharply higher yesterday on low volume. The Dow finished 603 points higher to close at 31,535. The NASDAQ and SPX were up 276 and 91 points, respectively. Volume on the NYSE was 20 percent lower than Friday’s volume, coming in at 94 percent of its 10-day moving average. There were 281 new highs and 25 new lows.
Here’s a few things I noticed about yesterday’s rally:
1. It occurred after all three major indexes appeared to complete a five wave decline, which I believe was Wave 1 down. So, yesterday’s rally was likely all or part of retracement Wave 2 up. Rallies in a Bear Market are almost always violent, driven by short covering. I believe this is what we saw yesterday.
2. Volume tends to dry up on wave 2 retracement rallies. Low volume rallies after large declines tend to be a short-term negative. Yesterday’s large rally on the NASDAQ was accomplished on the lowest daily volume in several weeks (only 5.2 Billion shares).
3. Yesterday’s large pop occurred on the first day of a new month. Whenever this pattern occurs, it usually pay$ to watch the low of the session. That’s because IF the first day of the month’s low is exceeded during the next two sessions, it usually has negative implications for the remainder of the month. So, the number to watch on the S&P (SPY) is 386.54. Yesterday’s low on the Dow (DIA) was 313.45. If either of these numbers are exceeded, it would increase the odds that a significant decline is starting.
4. Any decline now after yesterday’s rally could be the start of Wave 3 down. The numbers I’m watching to confirm the start of Wave 3 down are a break of Friday’s Wave 1 low of 309.18 on the DIA. A break of 3,789.54 on the SPY would confirm that Wave 3 down is starting on the S&P.
Yesterday’s action caused the Dean’s List to turn Neutral. The Tide remains Negative.
The Market Timing Indicator on the Dow (DIA) remains Negative while the same indicator on the NASDAQ has turned Neutral. This is something that often happens with indicators during a retracement rally. The Scalp Trading Indicators on the DIA and NASDAQ-100 (QQQ) remain Negative.
The Sector Ratio strengthened slightly to 20-4 Positive. The top 5 strong sectors are Service, Retail, Banks, Energy and Media. The four weak sectors were Telecoms, Computers, PharmaBio, and Food Drug. Continue to pay attention to the Sector Ratio as the week progresses.
Model Update: There were NO Changes to the Model. It remains 100 percent in cash.
Top Stocks: Several of the Top Stocks from Friday’s MWL had a nice day yesterday. NBR gained 6.85 points to close at 117.86. TDC was up 2.03 points at 42.13. The only reason I mention this today is to show you the continued strength of these top stocks. But this is NOT what I want you to focus on now. I mention NBR because it is one of the last remaining Top Stocks that is still in the Trend Mode. Most of the other previous Top Stocks have already moved out of the Trend Mode. And with negative indicators, I believe it will be easier to make money now on the short side.
That’s why I started to buy several inverse leveraged index ETFs yesterday when the Dow was up over 630 points. I also established a few short positions in MCK, DEO, and GILD once the short-term ST Indicators turned negative. I’m still waiting for the ST indicators on AAPL to turn negative. These picks (other than AAPL) were among several stocks highlighted by a new short-term trading algorithm I have been testing. The algorithm is based on the ST Indicators and is designed to catch stocks that are just entering the Trend Mode, either up or down. I have been having a lot of success recently with this new algorithm and plan to demonstrate it to students who took the ST Class soon. Unlike other newsletter writers who hide their ‘secret sauce’, I want my students to see how the algorithm generates these picks, both when the market is trending and when it’s not. One thing I plan to do during the demo is ask several students to ‘pick a date’ and I’ll run the algorithm on that date and see how it performs. Then after seeing the results, you can judge for yourself if you want to use these ‘picks’. Should be fun. I’ll be sending out an email invite with details on this free training session to everyone who took the ST Class. Watch for it….
Also pay attention 386.54 on the S&P (SPY) and 313.45 on the Dow (DIA). If these numbers are broken before tomorrow’s close, you might want to do a little money management.
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
03-02-2021
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 24 Feb 2021 |
NASDAQ | NEU | 01 Mar 2021 |
GOLD | NEG | 08 Jan 2021 |
U.S. DOLLAR | NEU | 17 Feb 2021 |
BONDS | NEU | 27 Jan 2021 |
CRUDE OIL | POS | 11 Nov 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.
Category: Professor's Comments