Professor’s Comments September 9, 2021
Posted by OMS at September 9th, 2021
9/8/2021
The markets were mixed yesterday as traders got back from the Labor Day Holiday. The Dow was down the most, falling 269 points to close at 35,100. The NASDAQ was up 11 points while the S&P lost 15 points. Volume on the NYSE was moderate, coming in at 101 percent of its 10-day average. There were 128 new highs and 34 new lows.
There is a possibility that the Dow has topped. At this point, I can’t be sure. However, after yesterday’s action, I can draw several trend lines on the Dow’s Ending Diagonal Pattern that if violated suggest the pattern could be breaking down. The first short-term trend line comes in just under the 35,000 level. If this line is broken this morning, the Dow should immediately test the second trend line located near 34,700 – 34,800. This is the critical level now. The 34,700 level represents the lower trend line of the Ending Diagonal. If this level is broken, it would suggest the Ending Diagonal has truncated and a decline down to the 18 June low of 33,271 is in the cards. Ending Diagonal Patterns almost always fall to where they began. In this case, its 33,271.
On the other hand, IF, and it’s a Big IF, the Dow holds 34,700, it’s still possible that it could rally to the 35,700 to 35,800 level I have been projecting. However, it MUST hold 34,700. In this case, the current decline would be wave ‘b’ down within the Ending Diagonal with final wave ‘c’ up rally to come.
The patterns on the S&P and NASDAQ are similar, but slightly different. The S&P has four small waves inside final wave ‘c’ up and looks to need one more rally wave to complete. The NASDAQ, especially the NASDAQ-100, appears close to completing its five-wave rally for final wave ‘e’ up. The patterns suggest both indexes are close to completion and may have topped. Yesterday, I started shorting the NASDAQ and the Russell 2K by buying a few trial positions in SQQQ and TZA. If the Dow breaks below 34,700, I’ll add to these positions and establish positions in SDOW and SPXU. All the symbols mentioned are inverse leveraged ETFs, so you don’t need a lot of them to make money if the market starts to decline. Also, remember that IF the Bear market is starting, it is still EXTREMELY early in the turning process. I want to see 34,700 broken to the downside, which will decrease the odds of any further rally, before I start becoming aggressive with my shorts.
The Market Timing Indicators for the Dow remain Neutral. The same indicators on the S&P and NASDAQ remain Positive.
The Scalp Trading Indicators for the Dow (DIA) remain Neutral. The ST Indicators on the S&P (SPY) and NASDAQ (QQQ) remain Positive.
The Dean’s List remains Positive. The Tide has turned Neutral. Last night, three of the four breadth indicators that make up The Tide, turned negative. The only positive holdout now is the Up-Down Oscillator. The more critical A/D Oscillator and the Hi-Lo indicators have already turned negative.
The Sector Ratio remained at 15 – 7 Positive after yesterday’s session. The top five strong sectors were Telecoms (3), Healthcare (2), Household Products (2), Food Drug (2) and PharmaBio (2). Students should note that the top five sectors are now all defensive in nature. No longer are the mode aggressive sectors, like Cap Goods, Computers, Semiconductors and Technology at the top of the List. The five weakest sectors are Autos (-2), Foods (-1), Energy (-1), Retail (-1) and Transportation (-1).
Model Update: There were NO Changes to the Model. It is still 100 percent in cash.
Top Stocks: With MARA as the top stock from Friday’s MWL, I went into yesterday’s trading looking to buy the Bitcoin miners. However the Scalp Trading Indicators were negative right from the get-go and nixed any trades. And because A-Trade doesn’t like to lend shares of the crypto miners to its clients, I couldn’t short the stock. So, I stayed on the side-lines with the miners for most of the day and watched. Even RCL, my go to short, was not cooperating as it had positive indicators for most of the day. My only money maker was TZA, which went positive at the 10:30 mark on the 15s. I held the position overnight. The reason I’m mentioning this is because I’m starting to hold a few short positions overnight now. I’m starting to feel more confident about the downside. As most of you know, for the past few weeks, I have NOT been holding long positions overnight because of the termination patterns I was seeing in the indexes. But now that the indexes could be starting to turn, I’m starting to feel more confident. If the Dow breaks below 34,700, and the indicators turn negative, I’ll be holding a lot more of these inverse positions overnight.
Last night, my trend algorithm identified the following stocks as possible shorts: They include IBM, LMT, BBBY, PAYX and CSX. The downside momentum on each of the above stocks has entered the trend mode with a negative volume indicator.
Gold: Gold (GLD) dropped 3.35 points yesterday, however the Timing Indicators remain positive. As I mentioned in previous Updates, I thought gold would rally to the 1,830 level before pulling back to 1,765. Friday, gold closed at 1,825, so I was watching for a pullback. If the ST indicators begin to turn negative, I’ll short a few shares of the gold miners. BTW, IF gold does pull back to the 1,765 level, I see it as a Major Buying opportunity for the future. Gold could go to 3,000 or higher in the years ahead.
Bonds: TMF dropped 0.76 points on Friday and fell another 0.75 points yesterday. The decline caused the Timing Indicators on Bonds to turn neutral. With TBT now moving up on the Dean’s List, I’m just waiting for the indicators on Bonds to turn negative before buying TBT. Be patient and wait for a signal change
9/9/21
I only have a few thoughts today to update yesterday’s Comments where I discussed the two short-term scenarios for the Dow.
The indexes declined as expected yesterday with the Dow testing and breaking its the first support trend line just under the 35,000 level. The Dow got as low as 34,925 before bouncing. It closed down 69 points at 35,031. So now that 35,000 has been broken, the next move should be a test of the lower support trend line of the large Ending Diagonal Pattern located near the 34,700 to 34,800 level. The next major move in the Dow will depend on what happens after this test of support.
If the 35,700 to 35,800 level holds, the Dow should begin a significant rally back to the 35,700 to 35,800 level I have been projecting. If on the other hand the 34,700 to 34,800 level is broken, it would suggest the Ending Diagonal has truncated and a decline down to the 18 June low of 33,271 is in the cards. Either scenario is possible at this point, so it will be important to pay attention to the Dow’s movements as it approaches its critical support during the next day or so.
One of the reasons I believe the Dow will trade lower today has to do with what happened yesterday. After opening slightly higher, the Dow quickly dropped over 200 points to 34,925, its low of the day. Once that happened, the large cap index traded sideways to form a small triangle that can be clearly seen on the 10- or 15-min bars. Triangles are consolidation patterns that usually form in a wave 4. The move out of a triangle is almost always in the direction that prices entered the pattern. In this case, its down.
Also, the Market Timing Indicator for the Dow turned Negative yesterday. This increases the odds that the Ending Diagonal, the final fifth wave of the Bull Market, has ended. So, if the Dow breaks out of its triangle sometime today and starts wave 5 down, it should test the lower support trend lines of the Ending Diagonal. If the trend line support holds, the Dow could begin a strong rally back to the 35, 700 + level. If the support doesn’t hold, well….next week could see some rough sledding.
Pay attention to how the Dow trades today as it approaches trend line support. It’s important.
That’s what I’m doing,
h
BTW, depending on what happens today, I will start posting interim updates to keep you informed.
Market Signals for
09-09-2021
DMI (DIA) | NEG |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 08 Sep 2021 |
NASDAQ | POS | 23 Aug 2021 |
GOLD | NEG | 08 Sep 2021 |
U.S. DOLLAR | NEG | 23 Aug 2021 |
BONDS | NEU | 07 Sep 2021 |
CRUDE OIL | NEU | 02 Sep 2021 |
CRYPTO | NEU | 07 Sep 2021 |
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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Category: Professor's Comments