Weekend Strategy Review July 11, 2021

Posted by OMS  at July 11th, 2021

As Yogi Berra, the great American baseball player and philosopher, would say, “It ain’t over till it’ over.”  Yogi was referring to a baseball game played during the 1973 season.  But the words are just as applicable to the current rally in the stock market which saw the Dow gain 449 points yesterday, blowing up the potential bearish pattern that we have been watching since 1 June.

In my WSR two weeks ago, I discussed the developing wave count and importance of the 1 June high of 34,849, I said that if the Dow stays below 34,849, the developing wave 2 could be considered a valid retracement wave.  I also said that IF the Dow rallies past the 1 June high of 34,849, the current wave count MUST change.  That happened yesterday when the Dow rallied above the June high and closed at 34,870.   So now, the decline we saw earlier this past week becomes Wave D down of the Ending Diagonal Pattern instead of the start of Wave 3 down.  By moving above 34,849, the odds that Wave E up will test and exceed the 5 May high of 35,091 have increased.  In Yogi’s words, it’s likely the Bull run ain’t over.

Friday’s rally also generated another ‘Island Reversal’ candlestick pattern, this time to the upside.  It came two days after a similar pattern was generated to the downside.  Hmmm?  It makes one question the reliability of candlestick patterns. 

Anyhow, after putting Friday’s rally under a microscope, it appears the rally developed in five distinct waves.  Five waves up are a sign that the primary trend remains up.  Remember, in Thursday’s Comments I was I talked about watching for more downside follow through, which would be a sign that the Dow was reversing trend.  That never happened.  Instead, the Dow traded flat to sideways after the 6 July high into the 8 July low and formed a 3-3-5 flat pattern.  This increased the odds that the decline was either wave 4 or more likely a Wave D in a five wave Bullish sequence.  In other words, it’s likely the Dow still has a bit more upside to go before the pattern is complete.   

This does not have to happen because like I said above, Friday’s rally consisted of five waves.  So, wave ‘E’ up could be considered complete…but that’s not likely.  The thing to watch now is the 8 July low of 34,145.  If the Dow moves below that level, the odds will shift to the Bearish side once again.   

The other thing to watch is the Market Timing Indicators.  During last week’s decline, the indicators never turned negative.  The Market Timing Indicator for the Dow turned Neutral for one day. The same indicators for the S&P, and NASDAQ remained positive.  The Scalp Trading Indicators for the indexes also never went negative.  So, continue to watch these indicators as the indexes trace out their final waves.

Also, AIQ’s Market Timing Signal was never confirmed.  In last weekend’s WSR, I mentioned that my AIQ analysis platform kicked out a 0-100 negative ER rating on the Dow.  The signal requires a change in momentum to be valid.  I said we would have to wait until (this week) to see if a Sell Signal is generated.  I also said that if the signal was confirmed, I’ll let you know.  That never happened.  BTW, AIQ’s artificial intelligence algorithm also kicked out another 0-100 Sell Signal after Friday’s session, so we’ll have another thing to watch as we move into next week.  This latest signal was also based on low breadth, just as the last one was.  AIQ also generated a 5-95 Sell Signal on the weekly chart of the Dow.  This is the second Sell Signal the system has generated since 18 June.  Both weekly signals remain unconfirmed.

So, we wait.

There were NO CHANGES to the Market Timing Indicators after yesterday’ session.  The indicators on the Dow, S&P, and NASDAQ all remain Positive.

The Scalp Trading Indicators for the Dow (DIA), S&P (SPY), and NASDAQ-100 (QQQ) remain Positive.   

The Dean’s List remains Positive.  The Tide remains Negative.  

The Sector Ratio weakened to 16-8 Positive after yesterday’s session.  The top 5 strong sectors were PharmaBio with an RS rating of 3, Consumer Products (1), Retail (2), Services (2), Household Products (2), and Computers (1).  The top five weak sectors were Banks (-2), Transportation (-2), Foods (-1), Media (-1) and Telecoms (0).  Continue to watch for weakness in the Sector Ratio as the indexes complete the final waves of their Bullish patterns.

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

Top Stocks:  Apple (AAPL) the #2 stock on Thursday’s MWL gained 1.87 points on Friday.  The Computer Sector remains as one of the top 5 strong sectors, so it wasn’t surprising to see AAPL rally along with the market.  Lululemon (LULU), the highest ranked stock from the Retail Sector, gained 3.89 points on Friday.  Students should continue to note how the top performing stocks come from the strongest sectors.

Gold:  Gold rose another 0.55 cents yesterday.  The rise is consistent with the ongoing wave 2 retracement rally.  The Timing Indicator for gold remains Positive. However, the pattern suggests that the current retracement rally in gold is nearing completion.  It’s possible that gold (the metal) could retrace to the 1,850 level or higher before the rally is complete.  But it would take a move above the 1 June high of 1,917 for me to turn Bullish.  Otherwise, the chart suggests that gold is developing an a-b-c retracement pattern where gold could rise to the 1,850 level in wave ‘b’ up and then start a wave ‘c’ decline that could take it to the 1,560 level +/-.  Gold closed at 1,809 on Friday.   I’m still on the sidelines with gold.

Bonds:  No change in Bonds.   Bonds still appear to be completing a retracement wave 4 that started form the 18 March low.  The Timing Indicators on Bonds turned positive on 28 June and remain Positive.  TMF, the positive ETF for Bonds, remains highly ranked on the Dean’s List.  All I’m doing now is waiting for a change in signal which would likely indicate the start of wave 5 down.  Again, no need to hurry into the trade.  Wait for the signal to change.

Have a great weekend.

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

07-12-2021

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