Professor’s Comments September 15, 2020

Posted by OMS  at September 15th, 2020

The markets gapped higher at yesterday’s open and continued to rally for most of the day.  The rally was the Big Move predicted by the small change in the A-D oscillator.  The Dow finished with a gain of 328 points at 27,993.  The NASDAQ and SPX were up 203 and 43 points, respectively. Volume on the NYSE was moderate, coming in at 91 percent of its 10-day average. There were 60 new highs and 12 new lows.

The Fed begins its 2-day meeting on interest rate policy today with an announcement scheduled for 2pm tomorrow.  The announcement could move the markets.  That’s because the inverse Head & Shoulders pattern I have been talking about for the past week remains in play.  Yesterday’s rally did not change anything with respect to that pattern.  However, yesterday’s breadth was stronger than what we have seen lately.  I mention this today because a large change in breadth is always something to watch.  If the breadth continues to increase, its possible that the alternate scenario I mentioned last week is occurring.

Under this alternate scenario, the decline from the 2 September high would be considered a wave 4, which means that a wave 5 up rally could take the Dow back above the 29,199 level.  The alternate scenario would be negated by a break of the 27,500 level on the Dow, which will likely start a significant sell-off that should drop the Dow down to the 25,000 level.

Yesterday’s rally in the S&P was stopped by the upper trend line of a declining channel that has been developing since early September.  If the trend-line of this declining channel continues to hold and breadth begins to weaken again, the markets will likely fall after the Fed announcement.  On the other hand, if the S&P starts to rally above this upper trend-line, it will likely follow the Dow higher.  The key level to watch on the upside is 3,425.  A break above this level would mean the S&P is starting to make higher highs, a Bullish sign.

On the downside, the key level to watch on the S&P is 3,325 as it represents the lower support line or ‘Blade’ of a Hockey Stick Pattern.  The level also represents a 5 percent decline since the S&P topped on 2 September.  From a historical perspective, large declines going into a Fed announcement usually lead to further declines over the next few weeks.  The large decline since 2 September represents the ‘Stick’ of the Hockey Stick Pattern and is about 263 points.  So, IF the S&P begins to break below its ‘Blade’ at the 3,325 level, it should fall to a target near the 3,062 level. 

The Market Timing Indicators for the Major Indexes are mixed.  Yesterday’s rally caused the Timing Indicator on the Dow to turn Neutral.  The same indicator on the NASDAQ remains Negative.  The DMI on the Dow also turned Positive after yesterday’s rally.

The Dean’s List remains Negative, but The Tide has turned Neutral.  The cause for the Tide change was the Up-Down oscillator which turned slightly positive after yesterday’s session. 

The Sector Ratio strengthened to 21-3 Positive after yesterday’s session. The top five strong sectors were Transportation, Consumer Products, Insurance, Retail and Leisure.  Energy, Semiconductors, and Banks were the three weak sectors.

There were NO CHANGES to the Model after Monday’s session.  The Model continues to hold trial positions of 1,200 shares of TWM, 1,600 shares of DXD, 400 shares of DUST, 800 shares of QID, and $35,531 in cash.  The Model continues to look for opportunities to buy shares of inverse index ETFs.

Gold (GLD) rose 1.44 points yesterday to 183.89.  Gold remains on a Neutral signal as its triangle pattern continues to form.  Triangles are usually found in a wave 4, which means the next major move in gold could be a strong wave 5 up.  On the other hand, triangles are also found in the middle wave of an a-b-c pattern.  If this is the case, wave ‘c’ down should be next.  Either scenario is possible with equal odds.  Right now, gold and the miners have reached the upper boundary lines of their triangle patterns.  If the boundary lines (resistance) holds, gold should begin to fall sharply.  If they break above the resistance lines, gold and the miners should begin to move sharply higher.  We should know which scenario is taking place within the next day or so.

The Dollar (UUP) fell slightly yesterday but did not provide any clue as to how the triangle in gold will be resolved. It still appears the Dollar is close to a forming a major bottom after declining to its 1 September low of 91.7.  The decline in the Dollar was accomplished in five distinct waves. So, some type of move up should be next.  It could carry to the 94.5 to 95 level which would be negative for gold.  Yesterday, the Dollar closed at 93.054.  A decline below the 93 level would likely negate the short-term Bullish bottoming pattern and suggest a larger decline is in the cards. This would be positive for gold.

Bonds appear to have completed a small corrective wave 2 within a larger Wave 3 down. Tomorrow’s Fed announcement could start a sharp decline in bonds. TBT, the inverse ETF for Bonds, was unchanged yesterday at 15.5. Students should watch for a change in signal.

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

09-15-2020

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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