Weekend Strategy Review October 17, 2021

The indexes staged a strong rally during the past two days closing the gaps since the 2 September highs. In doing so, the breadth of the market weakened considerably. The  A/D ratio on the NYSE going into yesterday’s session  was over 4:1, but at the close it was less then 1:1.  The same thing happen on Thursday… a high A/D ratio at the open that turned negative by the close.  In other words, the current retracement rally appears to be running out of gas.

By moving above the 34,900 level yesterday, there’s a chance the Dow could be forming a double zig-zag pattern for Wave 2 up. If this is the case, the second zig-zag of the pattern should complete with one more down – up sequence. The reason I mention this today is because IF this pattern is occurring, the Dow could rally to a new high after a small pullback. I believe the odds for this occurring are less than 30 percent, but it is possible. If the double zig-zag pattern is NOT occurring, the pattern remains an upward flat. If this pattern is occurring, the rally on the Dow should be close to completion.

The patterns on the S&P and NASDAQ are like the pattern on the Dow. However, the rally on the NASDSQ looks like it could use another down-up sequence before it is complete. A decline below this week’s low on both indexes would suggest that Wave 2 up is complete, and Wave 3 down is starting.

As I mentioned in previous Comments, Bear Market rallies tend to be powerful, dramatic, and short lived. They are driven by massive amounts of short covering, discouraging the Bears, and encouraging the Bulls to come back in just before the next leg of the decline is about to start. When I look at the volume accumulation pct and OBV pct on my charts, nothing has changed after the past two days of rally. These important volume measures are still negative. In other words, big money is still leaving the market.

The Market Timing Indicators for the Dow (DIA) turned Positive after yesterday’s session. The Timing Indicators on the S&P (SPY) and NASDAQ (QQQ) are Neutral.

The Scalp Trading Indicators for the Dow (DIA), S&P (SPY), and NASDAQ (QQQ) are also Negative.

The Dean’s List and The Tide are Positive.

The Sector Ratio remained at 17-7 Positive after yesterday’s session. The top five strong sectors were Energy (8), Service (3), Banks (2), Autos (2) and Material )2).

The five weakest sectors were PharmaBio (-2), Retail (-2), Telecoms (-1), Consumer Products (-1), and Technology (-1).

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

Top Stocks:  In Thursday’s Update, I mentioned that I would be looking to trade crypto and energy. All I can say is WOW!!!  After pulling back to give me a nice entry point on Thursday. MARA gained over 5 points on Friday.  RIOT was up 1.73 points on Friday. Like I said…”That’s why I’m in MARA (or RIOT, another Bitcoin miner) every time the indicators are positive.” 

Friday’s action put GBTC back on top of the Dean’s List and MARA at the top of the MWL. Since generating a Positive Market Timing Signal on 4 October, the cryptos have been on a tear. Bitcoin continues its trend as the market leader of the crypto currencies and is now flirting with the $60,000 level. Late Thursday, a Bloomberg article sent prices soaring after it claimed that a Bitcoin futures ETF will be approved. The charts still suggest that Bitcoin is in a Wave 5 rally. However, even Wave 5s have pullbacks. After yesterday’s rally, I need to see Bitcoin break above and maintains the $60,000 level. The currency is EXTREMELY overbought now and could decline to support at the 21-day moving average near the $50,000 level. If this happens, well…you know what I’m doing.

BTW, I don’t believe Cathy Wood is crazy when she says Bitcoin could hit $500,000 in the next five years. There’s a lot of things I like and dislike about her stock picks. In general, I believe she’s usually spot on when it comes to new technologies. But sometimes she can be woefully bad at timing. That’s why I like to look at some of the technology sectors that she invests in with her ARK Fund, but time my purchases when they appear on the MWL and DL. Right now, the technology sectors I’m most interested in are cryptos, energy and materials. Materials are now the fifth strongest sector. The materials I’m most interested in are Platinum and Palladium, not gold. Both PPLT and PALL appear to be bouncing off long term bottoms and are now moving up on the Dean’s List. If you believe that things like autonomous vehicles, augmented reality (AR), etc. are the future, these are the metals that will make them possible. When Kathy first talked about them, investors rushed out to buy these stocks, but the interest quickly faded. She was way too optimistic and early.  Her timing was poor. But now that these ETFs have bottomed, it could be time to move back in. The technology of the future is NOT going away. But now its 2-3 years closer than when Kathy first talked about it. Watch the indicators…with Bitcoin and the metals.

Also, as I mentioned in previous Comments, I continue to short Shake Shak (SHAK). Yesterday’s late decline which started at noon, produced a nice 2-point profit. Here’s the thing with stocks like MARA and SHAK. I believe both will produce nice gains over time. MARA to the upside and SHAK to the downside. So, I want to be long MARA every time the ST indicators are positive on the 15s and short SHAK every time the same indicators are negative.  Remember, on SHAK, I believe the next move will be down to the 50 level, possibly 30!  

I also shorted Target (TGT) for the first time (at 15:30 yesterday) at the 247 level. I had been looking for an entry point for the past three days. Yesterday, I got my chance.

So that’s it…. I’m trading MARSA and RIOT to the long side and SHAK and TGT to the downside. All I’m doing is using the ST Indicators on the 15s. Remember, retail is the second weakest sector.  Meanwhile I’m waiting for the indicators on the indexes to turn negative before re-establishing my short positions on the Dow, S&P, and Russell.

If you didn’t pay attention the first time when I wrote this…. I’ll say it again.  “The crypto ETFs could be a nice place to be during the next few months.”

Gold:  As discussed in Thursday’s Comments, yeah, I saw the Market Timing Signal for Gold turn Positive. But I also said, I’m not rushing out to buy gold or the miners yet because I didn’t like what I was seeing in the volume accumulation pct, OBV pct, and MF indicators. Turns out, staying on the side lines was a good thing. Gold got clobbered yesterday, with GLD dropping 2.67 points to 165.33. The decline turned the Market Timing Signal on gold back to Neutral. I’m still on the side lines for now.

Have a great weekend.

That’s what I’m doing.

h

One more BTW. ….Several weeks ago, I talked about how I was looking at several features to make the indicators on your Scalp Trading screen more user friendly.  These include the addition of arrows and precise buy and sell points. I’ve been testing and using these new additions for the past few weeks.  They make trading a LOT easier.  Seeing the appearance of a Green or Red arrow after a move is like getting clobbered on the back of your head.  You can’t miss it. And when the arrow is confirmed by the volume, it’s time to get in or out of a trade.  It works!

Anyhow, give me a few more days (I’m currently recovering from a sinus infection) and I’ll be well enough to show my new trading screen to you.  I think you’re really gonna like what I’ve come up with.  It’s not only clear and accurate, it’s pretty!

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

10-18-2021