Weekend Strategy Review June 13, 2021
Posted by OMS at June 13th, 2021
Not much changed after Friday’s session. The Dow sold off initially, and at one point was down over 100 points. However, a late rally saw the large cap index recover all its losses and finish up 13 points at 34,479. The Dow was down 277 points for the week. The NASDAQ and S&P were up 40 and 8 points, respectively on Friday and up 255 points and 18 points for the week. Volume on the NYSE was moderate, coming in at 90 percent of its 10-day average. There were 250 new highs and 12 new lows.
It still appears that the major indexes are in the final stages of developing significant topping patterns. I find it amazing that in the era of EXTREME valuations for meme stocks, like GameStop, AMC, DDD, BBBY and others all pumped up by Reddit and social media, how much the pattern on the Dow and S&P looks just like the one created by the Dot.com bubble in 2000. Back then, the Dow peaked in late mid-January, but the S&P continued to rally into late March. We’re seeing almost the exact same pattern now, as the Dow peaked on 10 May at 35,091 with the S&P continuing to rally over a month later. Students should take the time this weekend to reflect on these patterns because once the Dot.com bubble burst, the Dow and S&P dropped 39 and 51 percent, respectively.
Students should continue to watch the 3 June low of 34,334 on the Dow and 13,549 on the NASDAQ. If both indexes break below these numbers, it’s likely wave 3 down is starting on these indexes which should create the selling pressure to start the S&P heading lower. The critical number on the S&P to signal the start of wave 3 down is 4,168. BTW, yesterday, the early decline in the Dow tested and fell slightly below the 3 June low of 34,334 by reaching 34,329 before bouncing into the close. It is not unusual for an index to test the previous low and bounce the first time this happens. In other words, we still need to pay close attention to the Dow the next time it begins to test the 34,334 level. A close below this level would suggest that wave 3 down is underway.
The Market Timing Indicators on the Dow, NASDAQ and S&P remain Positive after Friday’s session.
The Scalp Trading Indicators for the Dow (DIA), and S&P (SPY), and NASDAQ-100 (QQQ) remain Positive.
The Dean’s List remains Neutral. The Tide turned Neutral after Friday’s session, as one of the key breadth indicators, the Hi-Lo indicator, turned Negative. The Hi-Lo indicator has been moving up as the Dow traded sideways for the past week. Now its starting to head down. The last time the Hi-lo indicator started to move down was immediately after the Dow made its high on 10 May. Three days later the Dow was down almost 1,200 points.
The big change I noted on Friday was with the Sectors. Even though all three major indexes finished positive, the Sector Ratio weakened to 19-5 Positive. session. The top 5 strong sectors were Service, Energy, Retail, Autos, and Financial. The Service Sector is still the highest ranked sector, but its RS rating has declined to a 5. The rest of the top five sectors have ratings of 3 and 4. Collectively, this is the lowest RS rating of the top 5 sectors in many months. The five weak sectors were the Semiconductors, Telecoms, Transportation, Household Products, and Banks. Continue to watch for increasing weakness in the Sector Ratio as the week progresses.
Model Update: There were NO Changes to the Model. It remains 100 percent in cash.
Top Stocks: I’m not going to say anything about the Top Stocks, …only that I warned you. After leading the MWL for several weeks, GME finally broke down and came crashing back to earth like all skyrockets do. I’ll say it again…. the stock is a piece of crap! It fell over 82 points on Thursday and is now trading at 220 vs 344.66 at Wednesday’s high. This is what happens with meme stocks that are ‘in-play’. They are being manipulated by kids in social media chat rooms. We saw the same thing happen with Bed, Bath, and Beyond (BBBY) after the company announced it would be introducing three new brands (of towels and wash cloths?) The kids on social media pumped the stock up to a high of 44.51 (ridiculous) last week before it tumbled to 31+ by Friday’ close. Dillard’s (DDS) continued its skyrocket ride on Friday gaining 2.43 points on Friday to close at 169.98.
Again, all the Top Stocks can be fantastic stocks to trade using the Scalp Trading Indicators on the short-term bars. Just don’t fall in love with them or hold them overnight. The EXTREME volatility in these stocks has produced some incredible gains, but just remember, they can come down just as fast as they go up. I still believe that they will be selling 50-60 percent or more lower in the months ahead. If you trade them, pay attention to the short-term bars. Same comments apply to crypto currencies, like Bitcoin, and most new SPACs, like A-Rod’s SLAM Corp. Are sane people really going to give A-Rod millions to invest and manage? Like I said, it’s 2000 all over again.
BTW, I did finish some of the research I mentioned last week on highly rated RS stocks (ratings of 10 or more) from the MWL. While my findings were limited in scope, it did appear that higher the RS rating, the better the performance, especially over the short-term. But this was not the always the case as several stocks with RS ratings from 5 to 9 also saw large gains. The thing that really stood out was the importance of the trend. If the highly ranked stock was in a trend, it tended to stay in a trend, sometimes for many weeks. This was also true for most of the lower rated RS stocks, but in many cases the trend in these stocks was a lot weaker. This tended to hinder their performance. Bottom Line: Pay attention to the trend. Make sure your ST momentum indicator is still trending when you select your stock from the MWL and get out once the trend is over. BTW, if you see a stock that you are more comfortable trading (and owning) with a RS rating between 5-9, there’s nothing wrong in doing this as my quick study still showed above average performance for most stocks. While the rocket ship rides of the Top 5 are exciting, the crash portion that occurs after the flame out is not pleasant. If you’re going to trade Top 5 stocks, only do it on a Scalp Trading basis, take profits quickly, and trade small quantities. This is also a place where you might consider using options. When you use options, the gains can be spectacular, and any loss will be limited to the money you paid for the option.
Gold: Friday’s pullback in gold is starting to look like a small wave 4 in a five wave up sequence. If this is the case, gold should make one more rally to the 1,917 -1,920 level before the sequence completes. After that, gold could decline to the 1,840 -1850 level before the next set of waves takes gold to new highs. Gold closed at 1,877 on Friday. If it trades down to the 1,850 level or less, I’m a short-term buyer. I’m still not convinced about the short-term pattern in gold, as it could be forming a double zig-zag, which would complicate the longer term pattern. My primary short-term scenario for gold is bullish to the 1,917 to 1,920 level, mostly based on what I’m seeing with the dollar’s decline. After that, we’ll just have to see.
I’m still avoiding Bonds even though my Market Timing Indicator for Bonds has turned Positive. I still believe that current rally in Bonds is part of a wave 4 zig-zag pattern. So, while Bonds will likely rally next week to complete wave ‘c’ up of the pattern, I believe the rally will be limited. The next major wave down (wave 5 down) on Bonds should erase all the gains Bonds made since late March. Like I said, I’m avoiding Bonds for now.
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
06-14-2021
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 10 Jun 2021 |
NASDAQ | POS | 07 Jun 2021 |
GOLD | POS | 06 May 2021 |
U.S. DOLLAR | NEG | 12 Apr 2021 |
BONDS | POS | 09 Jun 2021 |
CRUDE OIL | POS | 27 May 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.
Category: Professor's Comments, Weekend Strategy Review