Professor’s Comments September 29, 2020

Posted by OMS  at September 29th, 2020

The markets rallied hard again yesterday continuing the rally that started last Friday from extreme oversold conditions.  The Dow finished with a gain of 410 points, closing at 27,584.  The NASDAQ and S&P were up 204 and 53 points, respectively. Volume on the NYSE was low, coming in at 87 percent of its 10-day average. Large rallies on low volume are always suspect. There were 49 new highs and 10 new lows

Yesterday’s rally was likely part of an a-b-c retracement for Wave 2 up.  It was likely wave ‘a’ of the move. I expect the Dow to fall about 300-400 points from yesterday’s close in wave ‘b’ down before testing the 27,800 level in wave ‘c’ up.  Then once wave ‘c’ up of Wave 2 up completes, the Dow should resume its decline toward the 25,000 level as Wave 3 down unfolds. 

The alternative is that because of yesterday’s late pullback, which could be considered a small wave ’b’, the Dow could continue to rally toward the 27,800 level without a significant retracement.  However, because the Dow is EXTREMELY overbought now, with an RSI of 87.6 and the VTI showing NO Trend, I give this scenario significantly lower odds.

I remain on Full Red Alert as the market works its way through the current retracement rally. 

The Market Timing Indicators for the Major Indexes remain Negative. 

The Dean’s List remains Negative, but the Tide has turned Neutral.  The current Dean’s List remains short.

The major change to the indicators after two days of hard rally was in the Sector Ratio.  It turned 17- 7 Positive.  The top five strong sectors were Service, Retail, Consumer Products, Transportation, and Leisure.  I did note that 11 of the Strong Sectors has RS ratings of 1 or zero, which tells me the strong sectors are not that strong and almost any down day could turn these sectors back to negative again. The top five weak sectors were Energy, Autos, Healthcare, Bank, and PharmaBio.

There were NO CHANGES to the Model after yesterday’s session. The Model continues to hold trial positions of 1,200 shares of TWM, 1,600 shares of DXD, 800 shares of QID, and $43,651 in cash.  The Model will likely use some of the funds received from the recent sale of DUST to add to its shares of inverse index ETFs.

I used yesterday’s rally to buy back the DXD’s I sold early last Friday and am now about 75-80 percent short with inverse ETFs (DXD, QID and SQQQ).

I’m also waiting for my 30 minute Scalp Trading volume indicator on Apple (AAPL) to turn negative again before looking to re-establish my short in the stock.  APPL closed at 114.97 yesterday.  My target for the stock is 89, which is where the 200 day-moving average is currently located.   BTW, if the volume indicator on AAPL turns negative, I will also look to buy a few shares of SQQQ, a 3X inverse leveraged ETF that tracks the  NASDAQ-100.

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

09-29-2020

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.