Professor’s Comments October 22, 2020

Posted by OMS  at October 22nd, 2020

The markets opened higher yesterday but couldn’t hold their bids by the end of the day.  The Dow finished with a loss of 99 points, closing at 28,211.  It was the second consecutive day where the markets closed significantly off their intraday highs, something often seen when the market is approaching a significant top. The NASDAQ and S&P were down 32 and 8 points, respectively. Volume on the NYSE was moderate, coming in at 104 percent of its 10-day average. There were 62 new highs and 26 new lows.

Not much changed since Tuesday’s comments.  It still appears that the Bearish scenario I wrote about is developing.  In this scenario, yesterday’s intraday rally was an a-b-c affair that is either wave ‘a’ within a larger decline or the completion of minor wave 2 up.  If it was part of minor wave 2, the markets should begin to decline today or tomorrow at the latest. The decline should test the 24 September low of 25,537 with even lower prices possible.  If yesterday’s intraday rally was wave ‘a’ within a larger a-b-c pattern, the Dow should make one more rally to about 28,600+/- to complete wave ‘c’ up before the next major decline, Wave 3 down, gets underway.  This Bearish scenario will remain my primary scenario if the Dow stays below its 16 October high of 28,843.  If that high is exceeded, the Bullish scenario will take over.  Under this scenario, the Dow should re-test and exceed the 29,199 level and then push toward the 30,000 level into the election.

At this point, my Scalp Trading Indicators on the Dow and NASDAQ remain mixed.  Both indexes have negative volume indicators with decreasing positive momentum. This same situation existed last weekend when I warned that the markets would likely experience choppy trading until the situation with the mixed indicators is resolved.  Again, mixed indicators are usually a sign that the markets are in some type of corrective wave, either a wave 2 or a wave 4, which frustrate traders with their whip saws.

The pattern on the NASDAQ remains the same.  It still appears that the NDX completed wave 2 up of Wave 3 down on 12 October at the 12,205 level.  If this analysis is correct, the NDX should begin to drift lower into the 21 September low of 10,678 with even lower prices likely.  The only thing that would cause this Bearish outlook to change would be a rally back above the 12 October high of 12,205.

There was a change to the Market Timing Indicators yesterday.  The Timing Indicator on the Dow turned Negative.  The Timing index for the NASDAQ remains Neutral.

The DMI on the Dow (DIA) also turned Negative.

The Dean’s List remains Positive with a Neutral Tide.

The Sector Ratio stayed at 16-8 Positive after yesterday’s session.  The top five strong sectors were Retail, Transportation, Autos, Semiconductors, and Consumer Products. The five weakest sectors were Energy, Real Estate, Media, Banks, and Food.

There were NO Changes to the Model after yesterday’s session.  The Model remains mostly in cash with a small portion of its portfolio (about 20 percent) in gold. 

I’m still watching the indicators on gold to signal the start of possible Wave 5 up.  As of last night, the Daily indicators on GDX remain mixed with positive volume and negative momentum.  Be patient.

BTW, Apple (AAPL) is also showing mixed ST indicators on its Daily chart with a negative volume indicator.  If the volume indicator stays negative, students should watch for a shift in momentum.   If the momentum turns negative on APPL, it would tend to confirm what’s happening with the major indexes and will likely signal the start of APPLs decline to the low 90s where the 200 day ma provides support.  The negative Hockey Stick Pattern on the stock has a 34 point ‘stick’ which also suggests a target near 91.  If your tech stocks look like APPL, and their volume and momentum indicators turn negative, you might want to consider doing some money management.

That’s what I’m doing.

h

The 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

10-22-2020

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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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.