Weekend Strategy Review September 6, 2020
Posted by OMS at September 6th, 2020
The Dow gapped higher at yesterday’s open, then started to fall before rallying late in the session. The volatile session was driven by a less than stellar Jobs Report, bullish holiday bias and patterns that appear to be completed.
The BLS reported that while 1.4 Million jobs were created in August, it was significantly less than the 1.7 Million in July and 4.8 Million in June. So, the number of new jobs being created appears to be losing momentum. This is a significant issue for the economy as the country is still down 11.5 Million jobs from February.
On the positive side, the unemployment rate dropped to 8.4 percent which is the first time since March its been below 10 percent. One thing I noted in the report as troublesome for the longer term was the fact that more than 8 Million people have been unemployed for more than 15 weeks or more. When workers are unemployed for that long, they tend to not go back to work. In other words, these job losses will likely be permanent, which will impact the economy in other ways.
Anyhow, the jobs report is behind us and once we get past Labor Day, so will the bullish bias. My data shows the market is more than twice as likely to trade lower the week following Labor Day. The data also shows that trading could be volatile, with the average gain being about half the average loss which was about 6 percent.
From a pattern perspective, all the markets I follow have reached their target highs and appear complete. This includes the major European and Asian markets. Yesterday, the Dow finished with a loss of 159 points, closing at 28,133. So, it lost over 1,000 points in two days. That’s impulsive and suggests the top that I have been expecting for several weeks is finally in. The decline was enough to turn my market timing indicators for the Dow and NASDAQ Negative.
The broader S&P500 was also down yesterday, falling 3.51 percent. SentimentTrader.com reported that this was only the third time in history the index declined more than 3 percent. The tech heavy NASDAQ lost 5.23 percent as Apple and Tesla got clobbered, losing 8 and 9 percent, respectively. In Thursday’s Comments I talked about how Tesla and Apple were both forming inverse Hockey Stick prices that should lead to lower prices. Tesla is now down 23 percent from last Monday’s pre-market high. The patterns on both stocks suggest the decline is only beginning. Even after Tesla’s 23 percent decline, its P/E is still an insane 1,083!!!! Yup, it’s only the beginning. I found it interesting to note that Yahoo’s web page shows a yearly target of 288.86 for Tesla. Usually they are very optimistic. Tesla closed at 418 on Friday.
In Thursday’s Comments I also talked about the 28,290 level on the Dow as being an important level to watch, as a close below that level would mean the Dow has made a lower low, something usually associated with a Bear Market. Friday close of 28,133 with an intraday low of 27,664 satisfied that requirement. So now, unless the Dow can rally back above last Wednesday’s high of 29,163, I MUST assume that the Bear Market is underway. My next short-term target for the Dow is the 26,600 level, with even lower prices likely. This target level is obtained from the lower trendline of the rising channel pattern the Dow has been in since late June. If this trend line is broken, the next level of support is the 23,000 level. Beyond that is the February low. BTW, Friday’s losses would have been far greater if it were not for PPT buying throughout the day.
By breaking below Wednesday’s gap opening low of 28,713 and the previous low of 28,290, I am now on Full Red Alert.
The Market Timing Indicators on the Dow and NASDAQ have turned Negative. The DMIs for these indexes are also Negative.
The Dean’s List remains Positive while The Tide remains Neutral. A positive Up-Down oscillator is keeping the Tide neutral
One indicator that hasn’t turned Negative yet is the Sector Ratio. After yesterday’s trading it was unchanged at 22-2 Positive. This is something students should watch as we get further into next week.
The top five strong sectors were Leisure, Transportation, Retail, Service, Cap Goods, and Insurance. The two weak sectors were Energy and Semiconductors.
There were NO CHANGES to the Model after yesterday’s session. The Model continues to hold trial positions of 1,200 shares of TWM, 1,600 shares of DXD, 400 shares of DUST, and $43,379 in cash. The Model continues to look for opportunities to buy shares of inverse index ETFs.
Gold (GLD) rose 0.5 points yesterday to 181.64. Gold (the metal) remains on a Neutral Signal. The pattern suggests that wave 3 down is about to begin. This wave could take the metal down to the 1,675 level, which is my current target for spot gold. As long as gold stays below the recent wave 2 high of 1,992.59, I MUST assume that it’s heading lower. HUI, the gold miners index, remains on a Sell Signal.
Next week should see the Dollar push slightly lower before starting its Major Wave 3 rally. If this happens, the Euro and physical gold could see a small rally. The rally could be a nice entry point to short gold.
No change to Bonds, as Wave 3 down should take prices on TMF below the 28 August low of 38.1. Beyond that is the 5 June low near the 33 level. This means that interest rates are heading higher…something that should contribute to a decline in equities.
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
09-08-2020
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 04 Sep 2020 |
NASDAQ | NEG | 04 Sep 2020 |
GOLD | NEU | 26 Aug 2020 |
U.S. DOLLAR | NEG-T | 25 Aug 2020 |
BONDS | NEG | 13 Aug 2020 |
CRUDE OIL | NEG | 04 Sep 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.
Category: Professor's Comments, Weekend Strategy Review