Professor’s Comments September 3, 2020

Posted by OMS  at September 3rd, 2020

The markets staged a huge blow-off rally yesterday in what could have been the final top in several indexes.  Yesterday’s A-D ratio on the NYSE was the lowest since the current rally began after the April lows.  If yesterday’s rally was not the end of the Bull Market, we’re getting close.   The period just before the Labor Day weekend is usually very Bullish, so the major decline I see coming will likely start next week. The BLS will be announcing the results of the August Jobs Report tomorrow, so it could trigger the decline.

The Dow finished with a gain of 454 points, closing at 29,101. The NASDAQ and SPX were up 117 and 54 points, respectively. Volume on the NYSE was moderate, coming in at 110 percent of its 10-day average.  There were 165 new highs and 12 new lows.  

Apple (AAPL) and several other large technology stocks pulled back early yesterday and then traded sideways.  The large down, then sideways move, which resembled a small Hockey Stick, could have been waves 1 down and 2 up of the next major down sequence. If I’m right about this, the over-hyped, over-priced tech stocks like Apple, Netflix, Tesla, and others should continue to decline from the highs they made two days ago.  BTW, since reaching its ‘mania’ high of 538.75 in Monday’s pre-market, Tesla has fallen to 405.12.  So maybe traders are starting to understand that a stock split is NOT a valid reason for adding 10 percent to the value of a stock in one day. Tesla is now trading well below last Friday’s split adjusted price. People who bought Tesla just prior to the split are now losing money.  If I’m right about the developing Hockey Stick Patterns, these same people are about to lose a lot more.

Yesterday’s rally in the Dow started with a gap opening from the 28,713.5 level.  So, a move below this level will be significant.   The other number to watch is the 1 September low of 28,290.72.  The reason 28,290 is important is because it marks the previous daily low.  So, IF the Dow begins to move below 28,290.72, it will begin making lower lows, something usually associated with a Bear Market.

I’m will now be using a break of yesterday’s ‘gap opening’ on the Dow at 28,713.5 as my number to go to Full Red Alert on that index.

The Market Timing Indicators for the Major Indexes remain Positive. 

The Dean’s List remains Positive while The Tide remains Neutral.  The only positive breadth indicator keeping The Tide from turning negative is the Up-Down oscillator. The three most important breadth indicators, the Hi-Lo indicator, A-D Oscillator, and the Summation Index have already turned negative.  For the NASDAQ-100 (QQQ), a break of yesterday’s low of 296.89 would be a cause for concern.

The Sector Ratio remained unchanged at 22-2 Positive after yesterday’s session.  My composite chart of the sectors remains neutral.

The top five strong sectors were Retail, Transportation, Service, Consumer Products and Cap Goods. The two weak sectors were Energy and Banks.

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, 400 shares of DUST, and $43,379 in cash.  The Model continues to look for opportunities to buy shares of inverse index ETFs.

Gold (GLG) fell 2.43 points yesterday to 182.62.  Gold remains on a Neutral Signal waiting for Wave 3 down to begin. Yesterday’s decline in the metal caused the market timing indicators on GLD to move close to generating a Sell Signal.  The timing indicators on the miners have moved to a Sell Signal.

UUP, the ETF for the Dollar, rose 0.09 cents yesterday to 25.04. Its timing indicator is also close to generating a Buy Signal. Since the current rally in equities began in early March, the Fed has created $3.5 Trillion of new money ….out of thin air.  This incredible amount of new money has found its way into the equity markets, driving stocks and gold prices higher.  All this newly printed money diluted the value of the existing dollars in circulation, causing the price of the dollar to fall. This is about to change as the Fed’s balance sheet is now at an unrealistically high level ($7.2 Trillion).   At some point, the Fed will realize that it has caused an unsupportable mania in the stock market and begin unwinding (selling) its balance sheet.  When it does, the dollar will start rising again, stocks and gold will fall, and the American economy will suffer.  This is the reason the next Buy Signal in the Dollar is so important.     

Tomorrow’s Jobs Report announcement at 8:30am could be the trigger for that signal.  Students should watch how the market reacts to the announcement.

BTW, the volatility index (VIX) is now starting to rise.  Its pattern suggests it is completing a Declining Wedge, which is a very Bullish Pattern.  A rising VIX is usually associated with a falling stock market.  

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

09-03-2020

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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