Weekend Strategy Review July 25, 2021

Posted by OMS  at July 25th, 2021

In Thursday’s Comments, I discussed how the Dow would likely re-test its 10 May high of 35,090 because of the strong breadth of the overall market.  So, Friday’s move to 35,095 before closing at 35,061 was no surprise.  The rally appeared to be minor wave 5 of sub-wave 5 of Wave 5 up.  If so, it could be close to finishing.  We’ll know next week if the Market Timing Indicators turn negative.

The S&P gaped higher at Friday’s open and rose to a new all-time high which only a few points shy of the upper trend line of the advance that started from the 12 May low.  The trend line has had five major touches since the rally started, so if the index rallies early next week, it should be limited by the upper trend line which is currently located at the 4427.  The S&P closed at 4412 on Friday.   Last week’s pullback on the S&P to 4233 appeared to be wave 4 in a five wave sequence, making the rally since 19 July final wave 5.  We’ll see.  The thing I’ll be watching for next week is an impulsive move to the downside AND a change in indicators.

The Market Timing Indicators for the Dow remain Neutral.  The same timing indicators for the S&P and NASDAQ remain Positive.

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

The Dean’s List remains Neutral.  The Tide remains Negative.  The fact that The Tide, my primary breadth indicator, has remained negative during the advance since 19 July is one of the main reasons I remain cautious. This divergence in breadth is most noticeable on the NASDAQ where on Friday, the tech based index rose to a new all-time high with only about 2 percent of its members participating.  Crazy huh?  On the broader S&P, the number of new highs observed by my algorithms was 9 percent.  This contrasts to numbers near 33-35 percent during the rallies that took place back in March and April.  The rally that occurred in May saw new highs reach 28 percent of the total issues traded.  So, you can see how weak in terms of breadth the recent rallies on the NASDAQ and S&P have become.  Rallies with little to no breadth usually don’t last long.  We’ll see…

Because of the crazy breadth numbers, AIQ’s algorithm kicked out another 0-100 Sell Signal on Friday.  Again, the signal is NOT confirmed as the momentum remains positive.  Many of you have purchased the Scalp Trading Class and have become familiar with the indicators, especially the momentum indicator.  So, if you see the momentum turn negative next week, you can assume that the six recent unconfirmed Sell Signals generated by AIQ’s algorithm have been confirmed.

The Sector Ratio strengthened to 12-12 Negative after yesterday’s session.  The top five strong sectors were PharmaBio (2), Household Products (2) Computers (2), Semiconductors (2) and Service (1).  The top five weak sectors were Banks (-5), Energy (-4), Material (-3), Transportation (-2), and Telecoms (-2). 

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

Top Stocks:  REMX, the Top Stock from Thursday’s MWL, fell .82 cents on Friday.  The past three days of trading in REMX have formed an Island Pattern on the daily chart.  It will be interesting to see what happens early next week because IF the stock gaps lower on Monday, the pattern will turn into an Island Reversal.  One of the reasons I’m mentioning REMX today is because the #2 stock on Thursday’s MWL also has a similar potential reversal pattern.  Same for the #5 stock, DECK.  So, with 3 of the 5 top stocks on the List forming potential reversal patterns, we need to be on our toes on Monday. BTW, the potential reversal pattern on DECK is coming after a wave 4 pullback, which makes the 4 days of rally last week a wave 5.  BTW, Oracle (ORCL) the #6 stock on Thursday’s List dropped 3 points to 876.69 on Friday after completing a clear five wave pattern.  So, like I said, when we see potential reversal patterns like the one that developed on ORCL, we need to be careful.

Gold:  Gold (GLD) fell 0.53 cents on Friday and remains on a Sell Signal.  The metal appears to have completed a counter-trend rally that started from the 29 June low. The problem I’m having with gold now is whether the recent rally was a wave 2 up or part of another larger, more complex a-b-c pattern.  On Friday. gold broke below the wave ‘b’ low of 1,791, but then quickly recovered to finish at 1,801.  So, if gold breaks below 1,791 this week, I must assume that wave 3 down is underway.  If this happens, I will begin to short gold for a move down to the 1,750 level or lower.   Once all five waves of the decline are complete, gold should be trading at 1,670 or lower.  On the other hand, if gold breaks above the 15 July high of 1,834, it could rise as high as 1,850 to 1,880 before the wave 2 retracement is complete.  Bottom Line:  Corrective patterns are EXTREMELY hard to trade, so it’s probably best to wait for the pattern to complete before trading.

Bonds:  Bonds have moved sideways after completing last week’s Island Right now the Market Timing Indicators for Bonds are still positive.  However, the ST Volume indicator is close to turning negative.  If the ST indicators turn negative, I’ll start shorting Bonds by buying TBT.  Once the signals for Bond’s turn, they usually stay that way for a while.  I’m estimating this to be a 3-4 month trade.

Crypto Currencies and Bitcoin Mining Companies:  I will be adding Riot Blockchain (RIOT) to the Member’s Watch List next week.  As most of you know I have avoided discussing companies involved in crypto currencies, like Bitcoin and RIOT, mostly because when most analysts started talking about the stocks, they were EXTREMELY overvalued. However now that RIOT has pulled back from its high of 77.9, to the 28 level, I find the stock a very interesting play.  Here’s the thing:  I’m still not a big fan of BITCOIN.  As far as I’m concerned, at this point it’s just another currency, like the Dollar or the Euro.  It’s still in its infancy, representing less than 2 percent of the world’s money supply.  Whether BITCOIN survives or some other crypto currency takes its place is still to be determined.  But there’s no doubt in my mind that the technology behind BITCOIN…the Blockchain, is something to get excited about.  The Blockchain will change the way business is conducted throughout the world.  It will make financial transactions almost instantaneous.  A person working in Canada who wants to send money to her mom living in India will be able to do it in minutes, not weeks.  Mortgages and loans will be approved in minutes, not weeks.  Middlemen like Real Estate and Insurance salesmen will become obsolete.  No longer will you have to pay a Real Estate salesperson a 3 to 6 percent commission to sell your home.  Same for cars and almost everything else you buy that involves salespeople.  Most large financial transactions will be done without them, resulting in no or less commissions. That’s only a small part of what the Blockchain technology will do.

So, after my son’s visit this weekend, I decided that it might be time to get my students familiar with the technology.  It’s coming.  And while RIOT might not be the right stock to use to start learning about the Blockchain, it’s a start. For those of you who don’t understand a company like RIOT, think about them as being a warehouse full of computers …thousands of them working 24-7 to solve problems. They get paid for the work they do in BITCOINS. The process is called mining, or mining BITCOINS. Right now the mining process can be very profitable, as some companies can generate enormous profits. But the supply of BITCOINs is limited to 21 Million, and as of now, I believe close to 16 Million have been produced. So in the future, the process of mining BITCOINS will be harder which will likely impact the value of the companies involved in the mining business.

Anyhow, after this weekend, I will start looking for other technology companies involved with the Blockchain, especially those involved in the development of the algorithms and artificial intelligence to make the Blockchain work.  Think of it this way…

When Apple came out with the MAC, it was mostly used by teachers.  The IBM PC was the dominant machine in the late 80 and early 90’s.  Apple couldn’t compete.  So, they changed course and developed the iPhone which turned the phone into a hand held device that included a camera, flashlight, scheduler, and hand held computer that could access the internet.  It changed the world!  The thing that did this was the apps…or the application software.  Without the apps, the iPhone was still basically still a phone.  But once the apps started to be developed, things like the ones developed by large bankers, like Chase, where you could deposit checks into your checking account by phone, without having to visit the bank.  Life, especially financial transactions, became a lot easier and faster.

Well, the Blockchain technology is very similar. It enables secure financial transactions to take place in seconds, not days or weeks. I view the Blockchain as the third generation of the internet.  It will be the internet of commerce for the world.  I believe the companies that develop the apps to enable the financial transactions to take place on the Blockchain will be the eventual winners, not the currency.  That’s why I will be looking at several AI technology companies (app developers) in the weeks ahead.  If I like what I see, I’ll tell you about them and add them to the data base for the Member’s Watch List.  BTW, if you have any suggestions or favorites in this area, please send them to me and I’ll look at them.  It’s a start….

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

07-26-2021

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.

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