Weekend Strategy Review May 31, 2020

Posted by OMS  at May 31st, 2020

The markets were mixed on Friday as traders waited for Presidential news on China and watched violent protests develop in several major cities over the George Floyd murder.  I found it amazing that with tension growing with China, a major trading partner and Bond holder, cities burning, a global pandemic that has now killed more than 100,000 Americans and left 40 Million people unemployed, the markets remained as strong as they were. The Dow finished with a loss of 18 points, closing at 25,383.  It was up 918 points for the week.  The NASDAQ gained 121 points on Friday and was up 165 points for the week.

Friday’s early pullback and late rally appeared to be the first two legs of a developing triangle for wave 4 within Wave C of Major Wave B up. If this is the case, the Dow should continue to bounce around between 25,300 and 25,750 early next week to complete the triangle before moving higher in wave 5 up to complete the five wave sequence of the pattern.  If the triangle develops as I expect, it should be the springboard for the Dow to move close to or above the 26,000 level. With positive indicators on the cockpit, a positive Tide, and a Sector Ratio still showing a reading of 24-0 positive, this is my primary scenario.

On the other hand, Friday’s decline was accomplished on the highest volume since 20 March, the day before the market began its current Wave B retracement rally. So, it’s also possible (not likely) that Friday’s decline in the Dow could be the start of something larger.  We won’t know this until we get further into next week, but anytime I see extremely large volume on a down day in the Dow, I must be concerned. I still believe that once Major Wave B up completes, the Dow will trade significantly lower, retesting and then falling below the 23 March low of 18,214.

Students should understand that besides the pattern, which suggests a major top is fast approaching, there are also many other signs a top is near.  These include historically high sentiment readings, record call buying by small investors, ridiculous yields from Junk Bonds, and now this week…the introduction of ‘micro E-mini options’ designed to attract more small investors into the market.  Things like this are like what financial institutions were doing in 2004-2006 to attract buyers into the real estate market.  We all remember how that turned out in 2007-2008.  BTW, this past week, investors bid up CCC rated Junk Bonds, the Bonds of companies that are about to enter bankruptcy, to a yield of 5.79 percent.  Folks, this is plain nuts!  Most times junk should be closer to or even well above 10 percent. Remember, junk rated companies could be ready to go bankrupt!!!  Why would anyone in his right mind do this?  Heck, you can get B rated bonds for 5.1 percent.  I’ll tell you why…. people don’t understand what they’re buying! They’re only looking at the extra 0.08 percent.  NO, it isn’t worth the risk!   These people are gonna get creamed, wiped out, lose everything when the next downturn hits and all these companies shut their doors.  This is NOT the time for Junk Bonds, IPOs, micro E-mini options, or any other new gimmick the financial institutions might come up with.  They are all designed to take advantage of the current investor optimism and ‘hype’ in the markets.  It’s been my experience that whenever I start seeing these new ‘crazy’ vehicles appear, its usually a sign that a top of major significance is near.

The Market Timing Indicators for the Major Indexes are Positive.

The Dean’s List and The Tide are also Positive.

The Sector Ratio came in at 24-0 Positive after Friday’s session.  The top 5 strongest Sectors were Material (includes gold), Healthcare, Cap Goods, Leisure and Energy. The weakest sector on the strong list was the Banks. The sector will be one of my top candidates for a short once wave 5 of C up completes.

IF you want to trade a potential wave 4/5 move higher next week, you might want to focus on stocks in the strongest sectors.  Stop worrying about what the market is going to do and pay more attention to the sectors.  The Dow, NASDAQ, S&P and RUT are all in slightly different patterns.  You could see the small caps begin to roll over while the Dow continues to rise in wave 5 up.  There’s an excellent change that the RUT (IWM) topped on Thursday, so don’t think ‘Market’…no think individual stocks and strong sectors.

Gold (GLD) rose 1.19 on Friday to 162.91.  It’s still not clear what golds next move will be.  The VTI on GLD is still not in the Trend Mode (55.9) with neutral a 2-period RSI (54).  I can’t take a position with readings like this.

Bonds are also showing Neutral readings, but the charts continue to suggest lower bond prices.  At this point I don’t have any problem holding my shares of TBT and will look to add shares if the timing signals turn positive. 

The Model continues to hold 600 shares of TBT, and 500 shares of GOLD, 40 shares of UCO, with a cash balance of $73,747.

I want to close by saying that this was a nice week for me using my Scalp Trading Methodology and the new indicators.  I started the week with a Position Trade in DDM that netted just shy of $3,000.  This was followed by trades in gold, Bonds, and the indexes that netted between $365 and $1,009 every other day of the week.  I traded both sides of the market on Friday for a gain of $406. Except for the Position Trade, I was out of the market every night. I slept like a baby.  I just used my simple 1-2-3 step methodology to identify the trades and used the new indicators as the trigger.  If you’re not doing this, you might want to get a copy of my Scalp Trading Class video and study it this weekend.  If you do, you can attend one of my free follow-on training sessions.  Then, no matter what direction the markets take in the weeks ahead, up or down, you will be able to profit from the moves. Don’t be someone who watches or wonders what happened.  No, be someone who makes things happen.  It all starts with the video.

Have a great weekend,

That’s what I’m doing,

h

Market Signals for

06-01-2020

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.