Weekend Strategy Review April 19, 2020
Posted by OMS at April 19th, 2020
In Thursday’s comments, I mentioned that would feel better if the NASDAQ moved slightly above its recent high of 8,708. It did exactly that on Friday after Gilead Sciences’ announced that its antiviral drug, Remdesivir, appeared to be working on patients with the coronavirus. The announcement caused the Dow and other markets to rally hard in the overnight markets. The Dow finished with a gain of 705 points. It was up 523 points for the week. The tech heavy NASDAQ was up 118 points on Friday and up 497 points for the week.
Friday’s rally came after four days of sideways movement in the Dow which appeared to be a Wave 4 triangle. Seeing the triangle develop is the reason I thought the markets would make one more rally. The Gilead announcement was the trigger. So, from a technical perspective, Friday’s rally appears to be part or all of Wave 5 up within Wave C up of Major Wave B up. If this is the case, then the corrective rally since the 23 March low should be nearing completion. A decline below the recent low of 23,211 in the Dow’s triangle would likely signal the start of the Major Wave C down. If you have been trading this market to the upside, pay attention to the 23,211 level.
BTW, Friday’s gap opening should also be watched on Monday. Whenever I see a gap open after an extended corrective rally, it’s possible the gap could be an exhaustion gap which can turn into an Island Reversal. So, pay attention to how the market opens on Monday. If the Dow opens down and stays below Friday’s close, the pattern will form an Island Reversal which almost always marks the completion of a major rally.
Corrective rallies are always difficult to trade, especially if you want to take positions and hold them overnight. This is one of the reasons I had my Scalp Trading Class this week. For example, on Thursday, I bought two batches of QID, the inverse ETF for the NASDAQ during the day. I bought these positions for my own account and for the Model Portfolio. The two trades I made in my trading account produced nice profits. And because I did not hold these positions overnight in my trading account, I was NOT impacted by the overnight rally in the NASDAQ which led to a loss in the Model. I still believe the positions in the Model will be profitable, but I’m never happy when I see the Model get caught by a surprise announcement. A similar thing happened with Crude Oil.
The Market Timing Indicators remain Positive.
The Dean’s List and The Tide also remain Positive.
One of the things that surprised me after Friday’s session was to see the Sector Ratio weaken to 7-17 Negative. I would have expected it to strengthen or possibly stay even at 9-15 Negative, but it didn’t. It weakened…after a 700 point rally. Strange. The Strong List was led by Material, Utilities, PharmaBio, Telecoms and Healthcare. The Weak List was led by Media, Banks, Consumer Products and Leisure.
With Media and Leisure on the Weak List, and seeing Disney open 4.68 points higher, I the shorted the stock three times during the day for a nice profit. Scalp Trading stocks from the Strong or Weak Sector Lists continues to be a winning strategy. Just get in and get out when the indicators give say so. Take small profits and go home a winner…..even on days when the market is going against you. Several of my students who took my Scalp Trading Class reported profits on their first trade!
There were NO CHANGES to the Model after Friday’s session. The Model continues to hold 750 shares of DXD, 800 shares of TWM, 1,600 shares of QID and 1,000 shares of UCO, the ETF for Crude Oil, with a cash balance of 39,366. The Model Portfolio is currently down 1 percent vs. a loss of 11 percent for the SPX during the same period.
The Market Timing Signal for Bonds has turned Neutral. TMF, the positive ETF for Bonds fell 1.89 points to 44.06 on Friday. So, it’s possible that Wave 3 down in Bonds is starting. If it is, Thursday’s high of 46.16 should not be exceeded. A decline below the 14 April low of 41 would confirm that Wave 3 down in Bonds is underway, with a potential target near or below the 30 level. If the Timing Signal turns negative, the Model will look to buy shares of TBT, the inverse ETF for Bonds.
Bottom Line: The Major indexes appear close to completing their Major corrective rallies. If the markets begin to decline next week, the Model will add to its inverse positions.
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
04-20-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 31 Mar 2020 |
NASDAQ | POS | 08 Apr 2020 |
GOLD | NEU | 17 Apr 2020 |
U.S. DOLLAR | NEU | 15 Apr 2020 |
BONDS | NEU | 06 Apr 2020 |
CRUDE OIL | NEG | 24 Feb 2020 |
DISCLAIMER
As always, the Professor never makes recommendations. The information is provided on an educational basis so you can have informed discussions with your financial advisors and/or accountants about your individual investment decisions.
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, Weekend Strategy Review