Weekend Strategy Review June 27, 2021
Posted by OMS at June 27th, 2021
Stocks traded mixed on Friday with the Dow and S&P rising, the NASDAQ falling. The trading action appeared consistent with the retracement pattern I have been discussing for the past week or so. It still appears that the Dow is completing a wave 2 up within Wave 3 down. In Thursday’s Comments, I said that the markets might have one more leg up to go before they start down in earnest. That rally happened on Thursday and Friday taking the Dow slightly past the 34,250 level, the level I mentioned earlier in the week as a possible target for the rally since 18 June.
Friday’s intraday high on the Dow was 34,501, which is a 0.786 retracement of the decline that occurred between 1 and 18 June (wave 1 of Wave 3 down). Usually, wave 2’s retraces 0.618 of Wave 1, which is the number I was using to get to 34,250. So, seeing a 0.786 retracement was unusual, but still allowed. Actually, wave 2’s can retrace all of wave 1 and still be a valid retracement wave. However, IF the Dow continues to rally past the 1 June high of 34,849, the current wave count MUST change. I do not expect this to happen.
There was another small change in the A-D oscillator on Friday. This time it was a small change, -4.92 vs. -5.58 on Thursday, so we need to watch for another Big Move early next week. Students should note that even though the markets have rallied during the week, the A-D Oscillator remains negative. A negative A-D Oscillator means that more stocks on the NYSE are moving lower than moving higher. BTW, the A-D Oscillator is also a major component of The Tide, the four indicators I use to measure market breadth. Students should also note that The Tide remains negative. The fact that the breadth has remained negative during the current rally is another reason why I believe it is a retracement wave 2 and once it completes, the Dow should start a decline to the 32,000 level or lower. BTW, my target range for wave 3 of 5 down on the Dow is now between 31,700 to 32,100.
The pattern on the S&P suggests it is in final wave 5 of Wave 5 up of an Ending Diagonal. Given last week’s strong rally, which appears to be impulse wave 3 within the pattern, it’s likely that the broader index will pull back early next week for sub-wave 4 and then make one final rally later in the week. A close below 4,187 would increase the odds that the Ending Diagonal is complete, and that S&P has changed its trend from up to down.
The Market Timing Indicators on the Dow and S&P have turned Positive. The Timing Indicators on the NASDAQ remain Positive.
The Scalp Trading Indicators for the Dow (DIA) and S&P turned Positive after Friday’s session. The ST indicators on the NASDAQ-100 (QQQ) remain Positive. It is NOT unusual to have positive indicators during a significant wave 2 retracement.
The Dean’s List has turned Positive. The Tide remains Negative. It would be EXTREMELY unusual for the rally to continue with a negative Tide (breadth).
The Sector Ratio strengthened to 18-6 Positive after yesterday’s session. The top 5 strong sectors were Energy with an RS rating of 3, Service (3), PharmaBio (2), Financial (2) and Healthcare (1). The top five weak sectors were Transportation (-2) Material (-1), Foods (-1), Telecoms (-1) and Banks (0). 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: Three D Systems (DDD) was the Top Stock on the Member’s Watch List since last Monday gained another 1.18 points yesterday. At 39.3, the stock was up 11.35 points for the week! Continental Resources, (CLR), the #5 stock from Thursday’s List, on was up 1.41points yesterday. With positive indicators on Crude Oil since 21 June, CLR has moved from 36.52 to 39.4 on Friday. So once again, as I discussed with gold last week (I think), when I see the cockpit indicators turn on gold or crude oil, I simply go to the Member’s Watch List and look for stocks to trade. This week it was CLR. I just look for a time on the short-term bars (I was using the 5’s) when the bias (momentum) is positive and then enter the trade when the ST volume indicator turns positive. Pretty simple. Students can also use slightly longer bars like the 30’s to do the same thing.
If you look at a 5 day 30 min chart of CLR, you will see that the momentum or bias was positive since early Monday, 21 June. Then all you had to do was enter the trade every time the volume turned positive. If you did this, you would have entered the trade at noon on Tuesday at 36.42, exited at 37.77 (at 14:30 when the volume turned negative.) You could also have used the ST Trend Indicator and exited at 13:30 at 37.93. Another entry was just after the open on 24 June. The bias on CLR was still positive, so all you had to do was watch for the volume to start increasing again. This occurred at 10am, at 37.55. The exit was at 11:30am at 38.58. So, you made another 1 point of profit. Later, at 13:30 pm, again with positive bias, the volume indicator gave another signal for a 0.77 point profit. In other words, by using the 30’s (and having a life) you made three easy trades on CLR for a total profit of over 3 points. On a thousand shares, that’s a profit of over $3K in less than four trading days.
The nice thing about the trade was that it was totally methodical. Just like we did with gold, we saw the Timing Indicator for Crude Oil turn positive on 21 June. We went to the MWL and selected one of the top energy stocks to trade. We saw that the bias (momentum) was positive on CLR and then waited for the volume to turn positive. Three days later, we pocked 3K. Simple. It works!!!
This is just another example of how you can use the ST Methodology to trade other things, besides the extremely volatile meme stocks like DDD, DDS and crap like GME. Students can also do the same thing for Bonds.
Right now, the Timing Indicators on Bonds are Neutral. If they turn negative in the days ahead (as I expect), I will look to trade TBT, the inverse leveraged Bond Fund ETF. On Friday, the ST volume indicator on TBT turned positive. The momentum is still negative, so we need to wait. Also, TMF is still on the Dean’s List. If it falls off the List and is replaced by TBT, that will be another sign that Bonds are starting to weaken. That’s when I’ll start watching the ST Indicators on TBT closely. Again, I’m looking for Bonds to re-test the 18 March lows.
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
06-28-2021
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | POS |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 25 Jun 2021 |
NASDAQ | POS | 07 Jun 2021 |
GOLD | NEG | 08 Jun 2021 |
U.S. DOLLAR | POS | 16 Jun 2021 |
BONDS | NEU | 25 Jun 2021 |
CRUDE OIL | POS | 21 Jun 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