Professor’s Comments May 4, 2021

Posted by OMS  at May 4th, 2021

As expected, the Dow gapped higher at yesterday’s open and then powered past the upper trend line of the Wave 4 triangle pattern I discussed in the WSR.  The Dow reached a high of 34,221 before pulling back to close 239 points higher at 34,113.  Yesterday’s early rally appeared to be sub-wave 1 of Wave 5 up.  The afternoon pullback appeared to be part of sub-wave 2. Once sub-wave 2 completes, the Dow should begin its sub-wave 3 rally as it continues toward its projected target near 32,500 – 34,700 before all five sub-waves of Wave 5 up are complete.  A decline below 33,750 now would be Bearish as it would mean that Wave 5 up has either completed or truncated.

The early trading action on the S&P and NASDAQ was similar to that on the Dow but not as strong.  The S&P finished 11 points higher, but the NASDAQ finished 68 point lower.  Last week I discussed two possible scenarios for the final waves on the S&P, one that mirrors the Dow and one that continues to form a zig-zag or flat pattern for Wave 4.  Yesterday’s action did not do anything to clarify which scenario is taking place.  Both are still possible.  In the second scenario (flat pattern) the S&P could still pullback to the 4140 level, possibly to 4120 if Wave 4 is not complete.   

The NASDAQ remains the weakest of the major indexes.  It could have topped at the 27 April high of 14,171 as the index has traced out five distinct waves into that high.  Because of the five waves up, the key level to watch now is the 20 April low of 13,698.  If the NASDAQ trades below this level now, it would be making a lower low which is not something you want to see if you’re still bullish.

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

The Dean’s List remains Positive. The Tide has turned Positive. 

The Sector Ratio weakened to 21-3 Positive after Monday’s session. The top 5 strong sectors were Service, Retail, Material, Autos and Transportation. The three weak sectors were Media, Household Products and 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: Yesterday was not a particularly strong day for the top stocks on the MWL.  Only two of the top five stocks advanced which was not surprising given their recent rallies.  Also, the ‘trigger’ on the DIA was negative going into the session and stayed negative throughout the day telling me to remain cautious.  The indicator was spot on as there wasn’t much upside action after the initial gap opening.  Students should understand that when all five of the top stocks fail to have follow through rallies, it suggests that rally is getting long in the tooth.  If you’re going to trade the top stocks once retracement wave 2 down on the Dow completes, I suggest that you only do it with Scalp Trades using a short-term chart.  Doesn’t matter if the Dow projects to 34,500 to 34 700, …. that’s only 30 stocks.  The broader S&P and NASDAQ appear much closer to their final tops.  There is also a small possibility that the top on these indexes might already be in.  

Gold:   Wave ‘B’ of the 3-3-5 flat corrective pattern on GLD appears to have ended with the 29 April low.  Yesterday’s 2.15 point rally appears to be the start of Wave “C’ up.  If so, Wave ‘C’ up should take GLD above its 21 April high of 168.39 before the next the next major down leg begins.  This should cause the metal to rally above its 21 April high of 1,798, probably close to the 1,815 level.  The Market Timing Indicator on gold moved to a Buy Signal after yesterday’s rally.  Because I still believe the recent rally in gold is part of a corrective sequence, I’m still not interested in gold at this point.

Bonds:   Same for Bonds.  While the ST indicators on Bonds are Positive, I’m still avoiding Bonds for now.   I still believe that the recent rally is associated with a retracement wave 4 up.  Once this wave completes, Bonds should fall below their 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

05-04-2021

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.