Weekly Market Commentary

publication date: Aug 24, 2019

NOTE;  All posts are opinions only.  No investment advice is given.  Consult with a financial adviser and do your own due diligence before trading.
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Week of August 2, 2021


The 6-week period from early August to mid-September is seasonally the weakest time of the year for stocks.  We enter this period in 2021 with stocks near all-time highs but market breadth struggling to keep up.  The New York McClellan Oscillator is currently 0.92 but was recently as low as -89.  The Nasdaq Oscillator is still at -8.92, despite a recent buying surge.  This indicates internal weakness and is teetering on the edge of generating a Hindenburg Omen.




There are mixed signals on the longer-term daily charts, amid ongoing sector rotation from small-cap to large-cap stocks.  The Nasdaq recently hit new ATHs, but with negative divergence.  Meanwhile, Dow Transports are potentially finishing a corrective move with a bullish MACD back-test.  (However, all bets are off if Transports break below recent lows.)


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 On the other hand, the Wilshire Composite remains in a long-term solid uptrend with the NYSE lagging over the last few months.  I generally consider this to be a somewhat bullish scenario.


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In my opinion, the market is currently at its most vulnerable spot so far this year.  The combination of overbought conditions, negative market breadth and the Federal Reserve continuing to increase its "reverse repo" operations (which have removed over $1T of excess liquidity as of July 30th) suggests the market might be top-heavy and subject to a correction at any time - one that will have $1T less available liquidity to immediately buy the dip, thereby allowing the market to drop further, longer and faster than anyone expects.  However, none of the daily index charts currently shows warning signs, except for the negative divergence forming on the Nasdaq.  Given the unclear nature of the charts, I'll be proceeding with caution for now, looking for shorter-term swing trades or daytrades without any directional bias.


I'll also keep an eye open for individual stocks that have short-term bullish potential, which I'll post in the Stock Watch section of the blog, as warranted.  Over the past week, my chart signals have identified several individual smaller-cap stocks with bullish chart patterns just before they had short-term rallies, including SGRP, DYAI, XBIO, NAOV and JACK (just to name a few).


I'll be posting updates throughout the week, as shorter-term trading signals appear on the charts.  If you're interested in knowing what I'm thinking and trading in real-time and aren't already a subscriber, come join me at tradingideas.info. 

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Chart signals continue to outperform the traditional "buy and hold" approach.  Assuming one had traded 1x leveraged $SPY shares at each of the entry/exit points, this is how compounded trading results compared to a buy-and-hold strategy in 2020:


January 1, 2020 - July 30, 2021*

Proprietary Trading System ("Shadow Index"):  +167.8%
Standard Buy & Hold S&P 500 Strategy:                   + 36.0%

* Prices assume that you traded 100% of your portfolio in $SPY shares (with no options leverage) at each of the entry/exit points.  Past performance doesn't guarantee future success.

Source:  https://www.tradingideas.info/articles/recenttrades


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