Professor’s Comments May 6, 2021
Posted by OMS at May 6th, 2021
The market was mixed yesterday. The Dow finished with a gain of 97 points, closing at 34,230. The S&P had a small gain of 3 points; the NASDAQ lost 51 points. The NASDAQ is clearly the weakest index now and its possible that it has topped. Volume on the NYSE was moderate, coming in at 106 percent of its 10-day average. There were 411 new highs and 20 new lows.
In Tuesday’s Comments I discussed how the Dow appeared to be in sub-wave 2 down of a five wave sequence that once complete would lead to a rally toward the 34,500 to 34,700 level. During the day on Tuesday, the Dow pulled back to 33,765 where it appears that sub-wave 2 completed and the rally for sub-wave 3 started. The rally continued into yesterday where sub-wave 3 up got as high as 33,331 before it began to pullback. So, it’s likely that the sub-wave 4 consolidation started after reaching yesterday’s high. A decline below 33,750 now would be Bearish as it would mean that the 5 wave rally pattern has either completed or truncated.
Given that the indexes have been forming a lot of triangles lately, I would not be surprised to see another small triangle form during the next day or so before the Dow and S&P push higher toward their final targets. I’m not so sure about the NASDAQ. Like I said above, it might have topped. In a previous Comment, I mentioned that the S&P could pull back to the 4140 level, possibly to 4120 if Wave 4 is not complete. On Wednesday, the S&P got as low as 4,129, so it’s likely that its still forming its consolidation triangle. This means that it should push higher once the triangle completes. If I had to guess, I’d say the S&P trades between 4120 and 4180 for the next day or so, then breaks above 4180 before re-testing its recent high of 4219. Yesterday the S&P closed at 4162. A decline below the 4120 now would increase the odds that the S&P has topped as my alternate scenario considers the 29 April high of 4219 as the Wave 5 top.
The Market Timing Indicators on the Dow (DIA) and S&P (SPY) remain Positive. The Timing Indicator on the NASDAQ is Negative. The Scalp Trading Indicators on the DIA and SPY are Positive with Neutral Indicators on the NASDAQ. The momentum indicator on the Q’s remains slightly positive.
Students should pay attention to the key levels mentioned above AND the indicators as the week progresses.
The Dean’s List and Tide have turned Neutral. The reason The Tide is Neutral is because two important breadth indicators, the A-D Oscillator and Summation Index, have turned Negative. A rising market with a negative A-D Oscillator usually spells trouble for the market.
The Sector Ratio strengthened to 23-1 Positive after Wednesday’s session. The top 5 strong sectors were Service, Retail, Material, Autos and Transportation. The lone 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: The ST ‘trigger’ on the DIA turned positive on 3 May. Students who noticed this also probably saw that CROX was the #1 stock on the MWL trading at 98.13. Two days later its at 106.36. The #2 stock was NCR at 46.44. Yesterday it got as high as 47.44 before pulling back to close at 46.57. Capital One Financial (COF) was the #3 stock at 149.92. Yesterday it got as high as 154.47 before closing at 153.6. CVR Energy (CVI), the $4 stock on the MWL was at 22.47 on 5/3. Yesterday it closed just off its high of 23.59. #5, Seagate Technology (STX) was not in the Trend Mode when the market opened on 5/4, so you would NOT have passed on it. (Good thing as it wound up dropping 3.17 points during the next two days.)
So, IF you paid attention to the ‘trigger’, followed the rules, and bought the Top 4 stocks on the MWL, ignoring STX, once again you made money. Amazing how this happens! Again, forget about what the ‘market is doing and focus on the Top Stocks. The ‘trigger’ tells you when money is moving into the market, and the MWL tells you which stocks to buy. It’s that simple! BTW, IF you were NOT focusing on the Top Stocks and instead were looking to trade the NASDAQ or the FAANG stocks, you probably lost money during this time. You didn’t see FB, AAPL, AMZN, NFLX, G, or TSLA at the top of the MWL, so why would you trade them??? The negative volume indicator on the Q’s was another reason for not trading these stocks.
Gold: Gold (the metal) traded to a high of 1,800 on Tuesday which was just under the 1,815 level I have been using as my target for sub-wave 5 up of its 3-3-5 retracement pattern. If gold starts to move below 1,755 now, it’s likely the 5 wave pattern is complete. If the ST indicators on GLD turn negative, I’ll look to short a few shares. Not now.
Bonds: The ST indicators on Bonds remain Positive. However, the pattern still suggests that the recent rally in Bonds is associated with a retracement wave 4 up. Once this wave completes, Bonds should fall below their 18 March low. A close below the 29 April low of 22.73 on TMF would suggest that wave 5 down in Bonds is starting. This would also suggest that higher (not lower) interest rates are on the horizon.
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
05-06-2021
DMI (DIA) | POS |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 04 May 2021 |
NASDAQ | NEG | 04 May 2021 |
GOLD | NEU | 04 May 2021 |
U.S. DOLLAR | NEG | 12 Apr 2021 |
BONDS | POS | 03 May 2021 |
CRUDE OIL | POS | 28 Apr 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