Professor’s Comments May 11, 2021

Posted by OMS  at May 11th, 2021

In last weekend’s WSR, I talked about how the major indexes were forming their respective tops.  I said that the Dow had all the required sub-waves, the S&P looked like it needed one smaller rally, and that the top for the NASDAQ was likely in.  So, yesterday’s early rally on the Dow and S&P and early decline on the NASDAQ were no surprise.  All the indexes did pretty much what they were supposed to.  The early rally and late decline on the Dow produced a spinning top candlestick pattern which is reversal pattern often seen at major tops.  So, it will be interesting to see if the indexes begin to fall hard today and start breaking below their critical support levels to confirm that the top is in.

In the WSR, when I discussed the wave count on the S&P I said that last week’s rally appeared to be sub-wave 3 of 5 up.  So, students might wonder if Monday’s early rally and late decline were the continuation of sub-wave 3 with the late decline being sub-wave 4. I don’t think so.  The reason I say this is because yesterday’s decline was too large, and it was also impulsive.  You don’t usually see impulsive declines as part of a sub-wave 4 down.  So, because of where the decline occurred and its impulsive nature, I must conclude that the pattern on the S&P has put in a truncated top at the 4,236 level.  My original estimated target for the top was slightly above the 4,200 level.

A break below 4,147 on the S&P, which is where wave ‘e’ of last week’s triangle pattern ended, would confirm that the top is in.  I’m still using 33,750 as my key number on the Dow.  A break below this number, which is its sub-wave wave 4, would tell me that wave 5 of the Dow’s Bullish pattern completer with yesterday’s early rally.  

The Market Timing Indicators and the ST Indicators on the NASDAQ are already in Sell Signals, so it’s likely the index topped on 29 April at the 14,212 level.   BTW, the pattern on the NASDAQ since it started its Major Wave 5 rally last September has been picture perfect.  The final wave 5 rally that started on 5 March at 12,397, was also a picture perfect five wave rally.  So far, the decline since the 29 April top on the NASDAQ has consisted of sub-waves 1 down and 2 up.  Yesterday’s impulsive decline was likely the start of sub-wave 3 down.  If this is the case, the decline should start gaining momentum today.  If this happens, students should understand that this is only the initial stage, part of Wave 1 down, of a major five wave decline in the index.  It’s possible that before all five of these Major Waves are complete, the NASDAQ could be trading well below 10,000.  My charts for the NDX, the index that contains most of the large cap tech stocks, could be trading below last February’s lows (6,838) several months from now.  Yesterday, the NDX closed at 13,359. 

So, going into today’s session, the Market Timing Indicators on the Dow (DIA) and S&P (SPY) remain Positive.  The Timing Indicator on the NASDAQ remains Negative. The Scalp Trading Indicators on the DIA and SPY remain Positive with Negative Indicators on the NASDAQ (QQQ).  

Students should pay attention to the key levels mentioned above AND the indicators as the week progresses.

The Dean’s List remains Neutral. The Tide is also Neutral.

The Sector Ratio weakened to 23-1 Positive after Monday’s session. The top 5 strong sectors were Service, Material, Energy, Consumer Products, and Transportation. The one weak sector was Semiconductors. Continue to look for changes 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:  Because yesterday appeared to be a ‘reversal day’ for the Dow and S&P, I’m going to start focusing on a few stocks (shorts) from the Weak List.  All five of the Top Weak Stocks were down yesterday, and IF the market continues down today, I expect these stocks will lead the market down.  Here’s the list:  WKHS, DDD, TDC, TAN, and BIDU.  Others in the top 10 are SABR, FSLR, ABMD, MU and INTC.  I find it interesting that two semiconductor stocks, INTC and MU are among the ten weakest stocks when Semiconductor are the weakest sector.

Gold:   No change to my comments on Gold.  It still appears that gold (the metal) is near the upper boundary of a down sloping trend line from its 6 January high.  If gold is in the process of completing a retracement rally, it should begin to pull back soon.  Students should continue to watch the 1,670 level.  A break below this level would suggest still lower prices, possibly down to 1,550.   Otherwise, if gold holds 1,670, the pattern will start to become bullish.  I’m still avoiding gold for now.

Bonds:  Same for Bonds….no change.  The recent rally in Bonds appears to be a retracement wave 4 up.  Once this wave completes, Bonds should fall below their 18 March low.  TMF, the ETF I use to track Bonds, fell 0.70 cents yesterday to 23.19.  A close below the 29 April low of 22.73 would suggest that wave 5 down in Bonds is starting.  Yesterday, the ST Indicators on TMF took a big hit and are just barely positive now.  If the indicators turn negative, TMF should trade down to its 18 March low of 20.91, with even lower potential after that as wave 5 down unfolds.

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

05-11-2021

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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