Professor’s Comments May 20, 2021
Posted by OMS at May 20th, 2021
Wednesday’s big story was all about Bitcoin, which was down 30% to near $30,000 at one point yesterday, continuing a major sell-off in the crypto currency markets. The decline started last week after Elon Musk’s tweet that Tesla would not accept Bitcoin as payment for vehicle purchases. China’s recent announcement banning crypto currencies also aggravated the decline. It’s estimated that crypto currencies lost over $300 Billion during yesterday’s sell off. So, now you know why I have never been a fan of Bitcoin. If one man’s comments can cause the cryptos to drop $300 Billion in a day, it’s not for me.
Yesterday’s decline in the crypto currencies bled into the equity markets, causing the Dow to shed 587 points before bouncing to close 165 points lower at 33,896. The S&P and NADAQ also felt the initial pain, but the NASDAQ recovered all but 4 points of its loss by the close. The S&P finished down 12 points. Volume on the NYSE was moderate, coming in at 98 percent of its 10-day average. There were 50 new highs and 33 new lows.
Yesterday’s decline was the Big Move predicted by Tuesday’s small change signal in the A-D Oscillator. From a technical perspective, the early decline appeared to be sub-wave 3 down of Wave 3 down. The bounce off yesterday’s low of 33,474 appeared to be part or all sub-wave 4. If this analysis is correct, sub-wave 5 of Wave 3 down should drop the indexes to new lows. A rally past 34,100 would negate my primary wave count and make yesterday’s low wave ‘b’ of an a-b-c pattern that would suggest one more rally before the pattern is complete. I give this alternate pattern a low probability.
I’m still using the 32,200 level as my intermediate downside target for the Dow, but after yesterday’s decline and strong rally, I’m not sure how to label the waves that will get us there. There are many possibilities now, and if yesterday’s decline were only part of sub-wave 3 down, within Major Wave 3 down, the market could be setting up for an even larger decline before all 5 major waves are complete. For now, I’m still using the 3,900 to 3,910 level on the S&P as my initial target, possibly lower, and 11,700-11,800 on the NASDAQ, with 11,500 possible.
The Market Timing Indicator on the Dow have turned Negative. The same indicator on the NASDAQ remains Negative. The ST Indicators for the Dow (DIA) and S&P (SPY) turned Negative after yesterday’s session. The ST Indicators on the NASDAQ-100 (QQQ) remain Negative.
The Dean’s List has turned Negative. The Tide remains Negative.
The Sector Ratio remained at 22-2 Positive after Wednesday’s session. The top 5 strong sectors were Service, PharmaBio, Material, Autos, and FoodDrugs. Most of the RS Ranking in Strong Sectors remain weak, mostly 1s, 2s, and 3s, which does not suggest great strength. The two weak sectors were Media and Telecoms. 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: For the past week or so, the Top stocks have been gold or energy related. If you owned gold yesterday, you either made money or lost a little. Energy was different story, as most energy stocks got hit yesterday. Remember, the thing that caused energy to have a short term pop (the pipeline shut-down) has been fixed. So, energy stocks are no longer the market’s darlings, like they were two weeks ago.
The other top stocks on Wednesday’s list, stocks like Dillard’s (DDS) and GameStop (GME), which are in-play by the kids again…well you know what happens when the Big Boys decide to teach the kids a lesson…they get spanked! GME was down almost 12 points yesterday; DDS was also down about 12 points. Ouch! If you’re going to trade ‘in-play’ stocks like DDS and GME, you need to understand what you’re dealing with. These ‘in-play’ stocks are NOT things you want to hold overnight! BTW, I must make the same comment on…..
Gold: Gold (GLD) had another good day yesterday, moving to 177 before pulling back to close at 175.16. Remember, my target for GLD was the 175 level, so right now the ETF is trading slightly above my target. The indicators are still positive gold, but here’s the rub. As I mentioned in Tuesday’s Comments, GLD is at the Upper Trend Line of an a-b-c channel that has been developing since 30 March. So, gold could begin to pullback and re-test the Lower Trend Line of the channel currently near the 168 level. If GLD pulls back and then breaks below 168, it could lead to substantially lower prices? On the other hand, IF GLD remains above its Upper Trend Line, it could move substantially higher. By staying above its Upper Trendline, the pattern would then suggest that Wave 3 up is underway, a wave that could take gold (the metal) well above the 1,950 level, possibly higher. In other words, gold is at a major crossroads now. Pay attention the ST Indicators!
Bonds: I don’t have anything new to report on Bonds. I’m still bearish on Bonds. The pattern still suggests that the small sub-wave 2 up retracement within Wave 5 down has completed and sub-wave 3 down is underway. If this is the case, Bonds should start a decline that will test the 18 March low of 20.91. If 20.91 is broken, Wave 5 down could take Bonds back to the February 2020 lows. A move above the 7 May high of 24.61 on TMF would suggest that Bonds are developing a more complete Wave 4 pattern before Wave 5 down begins. Either way, I still don’t like Bonds here. I believe there are much better trading opportunities in the equity markets.
Weak List: Here’s few stocks from yesterday’s Weak List: SAM, TSLA, THO, LEN, ABMB, WSM, CNI (Yes, that CNI!), T, IBKR, and BYD.
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
05-20-2021
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 18 May 2021 |
NASDAQ | NEG | 04 May 2021 |
GOLD | POS | 06 May 2021 |
U.S. DOLLAR | NEG | 12 Apr 2021 |
BONDS | NEG | 11 May 2021 |
CRUDE OIL | NEG | 19 May 2021 |
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