Weekend Strategy Review May 9, 2021
Posted by OMS at May 9th, 2021
The indexes broke out of the triangle pattern they had been forming for the past two weeks and rallied toward their respective targets. The Dow got as high as 34,811 before pulling back to close at 34,777. The rally satisfied the requirements for five sub-waves up on Dow. However, Friday’s impulsive rally on the S&P appeared to only be sub-wave 3 of 5 up, so it could have a bit more to go before it completes. If this analysis is correct, the S&P could trade to the 4,265 – 4,270 level before it completes.
The NASDAQ is quietly losing steam as it continues to form its top. Since its Wave 4 low of 12,397 on 5 March, the technology index rallied in five clear waves into its Wave 5 high of 14,211 on 29 April. Since then, the index fell to 13,439, which exceeded its sub-wave 4 low on 6 May which makes the decline wave 1 down. Yesterday’s rally retraced 50 percent of the wave 1 decline, so it was likely part of wave 2 up. If this is the case, tech stocks could start their wave 3 decline next week. A close below 13,439 would mean that the NASDAQ is headed for the 5 March low of 12,397. If this happens, it will increase the odds that the top is in.
Several of the tech stocks I follow continue to develop the Blades of inverse Hockey Stick patterns. For example, Tesla dropped from its 25 January high of 900 to a low of 539 on 5 March. This decline was the ‘Stick’ of the pattern. Then from the 5 March low, it made a classic a-b-c retracement rally to a ‘Blade’ high of 780 on 14 April. After completing its Blade high, the stock has continued to show weakness, falling to 672 on Friday, even though the overall market continues to move higher. Other tech stocks like AMZN, FB, and AAPL are showing the same inverse Hockey Stick pattern. AMZN and FB lost money on Friday, even though the NASDAQ finished 119 points higher. It’s this quiet weakness in the large cap technology stocks that concerns me. These are the stocks that led the market higher. Now they are forming patterns that suggest significantly lower prices. Again, the key level to watch next week is last Thursday’s low of 13,439 on the NASDAQ.
The Market Timing Indicators on the Dow (DIA) and S&P (SPY) remain Positive. The Timing Indicator on the NASDAQ remains Negative. The Scalp Trading Indicators on the DIA and SPY are Positive with Neutral Indicators on the NASDAQ. The momentum indicator on the Q’s remains slightly positive. If the momentum on the Q’s turns negative next week with a negative volume indicator, I’ll look to start shorting the NASDAQ.
Students should pay attention to the key levels mentioned above AND the indicators as the week progresses.
The Dean’s List remains Neutral. The Tide has turned Positive.
The Sector Ratio strengthened to 24-0 Positive after Friday’s session. The top 5 strong sectors were Material, Energy, Consumer Products, Retail, and Autos. There were no weak sectors. Continue to look for changes to the Sector Ratio as the week progresses.
Model Update: There were NO Changes to the Model. It remains 100 percent in cash.
Top Stocks: A week after the ST ‘trigger’ on the DIA turned positive, CROX, the #1 on the MWL is now 10 points higher. Hmmm? Who cares what the overall market is doing? Our Top Stocks are doing great! NCR, the #2 stock from the List was up another 0.49 cents on Friday, closing at 47.83 after making a new high of 48.34. COF, the #3 stock on last week’s List was up another 1.27 at 157.71. It was identified as a Top Stock at 149.92, so now its up about 8 points. CVI, #4 was up 1.19 on Friday and DB was up 0.27 cents. So as of Friday’s close, all Top Five Stocks that were on the MWL when the “trigger’ gave say so are winners. Surprise, surprise?
No, it wasn’t a surprise. We expected the rally to happen. We would have been surprised if the rally didn’t occur. After all, the indexes were forming a classic triangle pattern for the past two weeks. Triangles are continuation patterns. So once prices broke above the upper trend line of the triangle, the rally was on. Astute students simply watched for the ‘trigger’ on the DIA to turn positive, then bought a few Top Stocks from the MWL and waited. By weeks end, they were rewarded with some nice gains. Simple. How many times do I need to demonstrate this in my training videos for the ST Class? The process is simple, and it works. If you still haven’t purchased the Scalp Trading Class, you might want to consider doing it now! After all, this is the only the fourth time this year that our ‘trigger’ gave say so, and all five events have resulted in winning stocks. Again, stop worrying about the ‘market’. Just let the rotation strategy keep you in winning stocks. Then when the ‘trigger’ turns negative, I’ll start posting a few stocks from the Weak List and we’ll repeat the process again, only this time to the downside.
Gold: Gold rallied for the past two days and is now near the upper boundary of a down sloping trendline from its 6 January high. If I’m correct about the current rally in gold being a retracement, gold should begin to pull back soon. Yesterday, gold futures closed at 1,833. The upper trend line on my chart is at 1,850. The retracement pattern suggests a high of 1,875 is possible, but not likely. If gold begins to pull back next week, students should continue to watch the 1,670 level. A break below this level would suggest still lower prices, possibly down to 1,550. Otherwise, if gold holds 1,670, the pattern will start to become bullish. I’m still avoiding gold for now.
Bonds: The recent rally in Bonds after the Market Timing Indicators turned positive still appears to be a retracement wave 4 up. Once this wave completes, Bonds should fall below their 18 March low. TMF, the ETF I use to track Bonds, fell 0.35 cents to 23.89 on Friday. A close below the 29 April low of 22.73 would suggest that wave 5 down in Bonds is starting. This would also suggest that higher (not lower) interest rates are on the horizon.
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
05-10-2021
DMI (DIA) | POS |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 04 May 2021 |
NASDAQ | NEG | 04 May 2021 |
GOLD | POS | 06 May 2021 |
U.S. DOLLAR | NEG | 12 Apr 2021 |
BONDS | POS | 03 May 2021 |
CRUDE OIL | POS | 28 Apr 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