Weekend Strategy Review February 14, 2021

Posted by OMS  at February 14th, 2021

The markets continued to push higher on Friday, as they trace out the final sub- waves of their major topping patterns.  After trading sideways on Wednesday-Thursday in what appeared to be a sub-wave 4 triangle, the Dow, S&P, and NASDAQ broke out of the triangle and began sub-wave 5 up.  The breakout led to new highs in the S&P and NASDAQ, but not in the Dow which remains below Thursday’s high of 31,544. The Dow’s non-confirmation is somewhat troublesome for the overall market as it came on the lightest trading volume of the week.  Breadth was also troublesome as Friday’s rally had almost as many declining issues as advancers.  

The markets will be closed on Monday for the President’s Day Holiday, with trading resuming on Tuesday.  The sub-wave patterns on the major indexes, which are slightly different, suggest the Dow will likely make a new high on Tuesday or Wednesday.  The reason I say this is because the Dow appears to have a more complex triangle pattern than the S&P and NASDAQ, so IF it moves out of this pattern, it should do it to the upside.  Remember, triangles are consolidation patterns and moves out of a triangle are always in the direction they entered the triangle.  On the other hand, because of the complex nature of the Dow’s sub-wave pattern, there is no guarantee that the pattern is a triangle…it could still be part of a retracement wave 2, so we still need to pay attention to last Thursday’s low of 31,244.  A decline below 31,244 at this point would negate all Bullish patterns and likely cause some of our indicators to turn negative.

The DMI on the Dow turned positive on 5 February and remains Positive.  The Market Timing Indicator on the Dow (DIA) and NASDAQ remains Positive.  The Scalp Trading Indicators on the DIA and QQQ remain Positive.  With the indexes now at target levels, students should pay close attention for any change in signals.  

The Dean’s List and The Tide remain Positive.  The Sector Ratio remains at 23-1 Positive after Friday’s session.  The top 5 strong sectors are Media, Energy, Cap Goods, Service, and Semiconductors. The only weak sector was the Telecoms.  Continue to pay attention to the Sector Ratio as the week progresses.

BTW, on Friday, AIQ’s artificial intelligence kicked out a 0-98 sell signal on “ZALL”, an index generated using the sectors.  This is the first sell signal since 4 January.  The signal was generated because both the On Balance Volume and the Volume Accumulation Percentage did not accompany Friday’s highs.  AIQ’s sell signals tend to be an early warning of a problem in the market and are not something one should act on by itself.  The signals are part of a two part indicator system that uses both signals and a change in momentum.  So, next week, with an AIQ’s sell signal now on the Board, I’ll be paying close attention to the ST momentum indicator, especially if the Dow begins to break below 31,244.

Model Update:   There were NO Changes to the Model.  It remains 100 percent in cash.

Top Stocks:   Going into Friday’s session, the Top 5 Stocks were TDC, DDD, WPRT, SBNY and BIDU.  All but DDD were winners on Friday, with DDD moving out of the Trend Zone.  The reason I mention DDD today is because we have seen what happens to Top Stocks once they move out of the Trend Zone.  TSLA was at 864 when its trend ended.  Now its at 816 after gaining 4.46 points on Friday.  I’ll say it again… in my opinion, there is nothing special about any of these top stocks, including stocks like TSLA and DDS.  There is NO fundamental reason a department store like Dillard’s goes from 55 to 128 in less than a month.  I believe the only reason they make moves like this is because they are in play with large traders and Hedge Fund managers. Once the momentum shifts and these guys lose interest, they move on to other stocks and put them in play.  The MWL will always tell you which stocks are the strongest and ‘in-play’ so you can participate in their rallies using the ST Indicators.  However, you MUST pay attention to the ST momentum indicator and get out once the party is over.

BTW, TSLA still has narrow bands with a negative DMI.  The ST Volume Indicator on TSLA turned positive after Friday’s rally, but the momentum continues to wane.  If you’re still trading TSLA, pay attention to the ST Indicators next week, especially with the potential for a band squeeze.  TSLA is now #8 on the Weak List.

Another stock to watch next week is Apple (AAPL). It currently supports a negative DMI and is in a negative Hockey Stick Pattern. The ST Volume indicator is negative, so IF the momentum turns negative, APPL could lead the market lower. APPL is now at the bottom of the MWL. During the week, it made its first appearance on the Weak List, but moved back to the positive list after Friday’s small gain. Watch APPL.

Gold and Silver:  Gold (the metal) fell on Friday, but the miners staged a small rally.  I used the ST Indicators on the short-term bars to eke out a small profit on CDE and WPM. The profit wasn’t worth the time spent.  The problem is that while gold is on a sell signal, the miners as evidenced by the HUI, are still on a neutral signal.  So, until the HUI turns negative, shorting the miners could be a waste of time.  On the other hand, the pattern on the HUI continues to suggest lower prices, and with narrow Bands, things could change quickly.  I continue to watch gold and the miners closely, as my target levels are significantly lower than current prices.

Have a great weekend.

That’s what I’m doing,

h

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

02-16-2021

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.