Professor’s Comments September 21, 2021
Posted by OMS at September 21st, 2021
Last weekend I discussed two scenarios for the Dow. The first suggested a small rally before falling; the second suggested a sharp, immediate decline to start Wave 3 down if the 34,600 level did not hold. I said, ‘You’ll know it when you see it.” I projected that the first stop would be down to support near the 32,272 level. Yesterday, the Dow got as low as 33,613 before bouncing. The low was likely the completion of sub-wave 3 down within the five-wave sequence for Wave 3 down. A snap-back rally for sub-wave 4 up of the sequence should be next. Then once the sub-wave 4 retracement is complete, likely in a day or so, the Dow should start another significant decline.
Yesterday was a 90 percent down day, where downside breadth and volume on the NYSE saw their lowest levels in over a year. Oftentimes, after a 90 percent down day, the market stages a sharp snap back rally as the ‘buy the dip’ crowd comes in looking for bargains. That may be the case today. But the wave count suggests the buying will be short lived, and that any rally now will be a better opportunity to sell into than buy. BTW, DO NOT ignore yesterday’s 90 percent down day or yesterday’s incredible opening Tick of -2067. The last time we saw an opening Tick even close to that was on 11 May. That negative Tick started the Bear Market in the trannies. Over the years., I’ve learned to pay attention to 90 percent down days and EXTREME negative opening Ticks. They tell you a lot about the overall strength of a market. I’m highlighting the EXTREME negative Tick and the 90 percent down breadth today so my students can learn from my experience.
In the WSR, I mentioned that trading action could be EXTREMELY volatile this week. The reason I said this is because there are two especially notable events scheduled for later this week. The first is the Fed Meeting on interest rates, which starts today. Once again, the focus of the meeting will be on whether to start ‘tapering’ the $80 Billion of Bonds and $40 Billion of mortgage-backed securities the Fed currently buys each month to keep the economy afloat. The Fed’s internal discussions were tense when the Dow was at 35,631. Now that its 1,661 points lower, those same discussions could become heated. Basically, the Fed is in a box. If it starts to taper, which it desperately wants and needs to do, the lack of new money will put additional pressure on an already declining stock market. If it decides not to taper, and continues to purchase Bonds, (with money created out of thin air), it will lead to even more inflation, which is one of the two things the Fed is mandated to control. So, Wednesday’s 2pm announcement should be interesting.
The second, significantly more important announcement has to do with China’s Evergrande Bank. If you have been following the news in recent months, you already know that the Bank, which is China’s second largest property develop, is in trouble. Big Trouble! The company has accumulated so much debt, it can no longer pay the interest on its loans which become due on Thursday. If the company declares bankruptcy on Thursday, it will create a fiscal crisis that will not only impact the Chinese real estate market, but Banks and real estate throughout the world. Many investors in the U.S have ties to Evergrande Bank, so it’s ‘official demise’ could trigger a contagion in real estate. I say, ‘official demise,’ because its clear the Bank is already bankrupt, as its share price is down 94 percent from its October 2017 high and its bonds are selling for 20 cents on the Dollar. In other words, its assets can no longer cover its huge debt. They can it anything they want, but I call it bankrupt. And IF China’s second largest Bank declares bankruptcy at a time when U.S. stocks are starting a Bear Market, the one thing you can count on is a lot of volatility. Stay tuned….
Yesterday was also an important day for my VTI Indicator. As many of you know, the VTI is the indicator that drives the Market Timing Signals on the cockpit. The reason yesterday was important is because for the first time since 25 February 2020, the VTI entered the down trend zone. When this happened on February 2020, the Dow was trading at 28,149. Less than a month later, the Dow hit a low of 18,213, a decline of almost 10,000 Dow points. The VTI is a reliable trend indicator, not only on the downside but for calling sustained rallies as well. For example, the indicator went into a positive trend on 10 March earlier this year. The Dow went from 32,298 to a high of 35,091, a gain of 2.793 Dow points. There are many other examples of significant gains (or losses) after the VTI entered the trend zone. So, be careful.
If the Dow rallies today. I’ll start looking for opportunities to get short. Once again, I’ll be watching the Scalp Trading Indicators on the short-term bars. I believe that once the sub-wave 4 snap back rally completes, the Dow will start a sub-wave decline that will drop prices near the June low. The other indexes are in the same boat.
The Market Timing Indicators for the Dow and S&P remain Negative. The same indicators on NASDAQ have also turned Negative.
The Scalp Trading Indicators for the Dow (DIA) remain Negative. The ST Indicators on the S&P (SPY) and NASDAQ (QQQ) have turned Negative.
The Dean’s List and The Tide are Negative.
The Sector Ratio weakened to 1-23 Negative after yesterday’s session. The only positive sector was Telecoms with an RS Ranking of (0). The five weakest sectors were Real Estate (-3), Consumer Products (-3), Energy (-3), Service (-2), and Autos (-2).
Model Update: There were NO Changes to the Model. It is still 100 percent in cash.
Top Stocks: A quick look at the MWL tells me all I need to know about what I should be doing this week. Right now, the Top Stock on the List is VXX, the volatility index. When VXX is at the top of the List, it’s a danger signal for stocks. That’s why VXX is in the data base. Basically, when the volatility is strong and rising, it means that stocks are falling. A rising volatility index is bad for stocks. Also, DXD, the inverse ETF for the Dow (DIA) is in the #5 position on the List. It means that only four stocks, including VXX, are stronger than it. Also, QID is at the #9 position on the List. So right now, if you remove VXX and DXD, there are only 6 stocks in the data base that are stronger than the two inverse index ETFs. This should tell you something about the strength of the current market.
Gold: Gold (GLD) fell 1.17 points yesterday to 164.93. The Timing Indicators for gold remain Negative. and there are no mining stocks on the MW, so I’m patiently watching for signs that the next major wave up is starting. Yesterday’s decline could have been the completion of an a-b-c decline for sub-wave 2 down. If this is the case, the next rally in gold could take it to new highs. Again, watch for a signal change.
Bonds: TMF rallied for 1.1 points yesterday, but I’m still neutral to negative on Bonds. I’m still watching for a downside break of 28.87 on TMF to get interested in buying TBT. Otherwise, I’ll stay on the side lines with Bonds.
Cryptos: My Market Timing Indicator for the cryptos turned neutral on 8 September, warning that the rally in the crypto currencies could be nearing completion. Since then, Bitcoin mining stocks like MARA and RIOT, have pulled back between 20 to 30 percent. Once again, it pay$ to watch the timing indicators. Yesterday Bitcoin declined to 43,126. Like I mentioned in the WSR, it’s possible that it could fall all the way down to the 28,958 level, the level where Major Wave 4 down ended. Again, be patient and wait for a signal change. When you see MARA and RIOT back near the top of the MWL, that’s the time to start getting excited about Bitcoin and the miners. Not now. BTW, the price of Bitcoin is tied into what happens with China’s indebted property sector, so what happens on Thursday with Evergrande Bank could be critical to the crypto currencies. I would not want to be long the cryptos or the crypto miners after Wednesday’s close. It’s a way too risky bet for me.
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
09-21-2021
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 08 Sep 2021 |
NASDAQ | NEG | 20 Sep 2021 |
GOLD | NEG | 16 Sep 2021 |
U.S. DOLLAR | POS | 17 Sep 2021 |
BONDS | POS | 20 Sep 2021 |
CRUDE OIL | POS | 15 Sep 2021 |
CRYPTO | NEG | 20 Sep 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