Professor’s Comments September 24, 2020

Posted by OMS  at September 24th, 2020

The markets rallied early yesterday, re-testing the ‘necklines’ of their respective Head & Shoulders patterns.  This is something that often happens before markets resume their declines.  By the end of the day, the markets were trading significantly lower. The Dow finished with a loss of 525 points at 26,763. The NASDAQ and SPX were down 331 and 79 points, respectively.  The NYSE was advance -decline ratio was a lopsided 9.2 shares down for every one that was up.  Total volume on the NYSE was moderate, coming in at 98 percent of its 10-day average. There were 28 new highs and 54 new lows.

Yesterday was the second day in the past three days that the Dow has lost over 500 points.  Given that the Dow has broken below ‘neckline’ support of its H&S Pattern in the process, this type of impulsive action is likely part of Wave 3 down.  The retracement rally off Monday’s low was likely a small wave 2 up within Wave 3 down.  If this analysis is correct, the Dow should continue its decline toward the 25,000 level as Major Wave 1 down continues to unfold.  The 26 June low of 24,971 level is the next likely target because it is where Major Wave 4 down completed, and the Ending Diagonal Pattern of Major Wave 5 up began.  Targets for an Ending Diagonal Pattern are always where the pattern began.

The alternate to this Bearish outlook is that the Dow could be developing an a-b-c pattern for a Wave 4, which would mean that another rally wave is possible once the current decline completes.  I don’t give this scenario much of a chance given the impulsive nature of the decline we’ve seen recently and the Bearish indicators.  A break below 26,600 would eliminate this Bullish possibility. 

I remain on Full Red Alert now that ‘neckline’ support in the indexes has been broken.

The Market Timing Indicators for the Major Indexes remain Negative. 

The Dean’s List and Tide remain Negative.  Students should note the short length of the current Dean’s List. It’s really short now.

The Major Change that occurred yesterday was with the Sector Ration.  It is now 19-5 Negative.   This is further evidence that a significant decline is developing. The five strong sectors were Retail, Consumer Products, Transportation, Service, and Telecoms.   The top five weak sectors were Energy, Autos, Banks, Healthcare and Financials.

My algorithm continues to remain active. Yesterday, it listed another 74 stocks as shorts.  Be careful!

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) fell another 3.86 points yesterday, after breaking out of its triangle pattern to the downside.  My downside target for Wave 4 down in the metal was near the 1,850.  The target was hit yesterday before gold closed at 1,863.  Again, IF 1,850 didn’t hold, it would have meant that something else is occurring and prices could fall to the next level of support which is near 1,770.  So, with gold looking like it wants to form a Wave 4 bottom, I must now start looking for signs of a Wave 5 up rally. 

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

09-24-2020

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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