Weekend Strategy Review February 11, 2018
Posted by OMS at February 11th, 2018
The markets finished the week with the rally I expected from EXTREME oversold conditions. But early in the day, I had my doubts. The Dow fell 500 points after the open, dropping below the 23,700 level I had been using as the trigger that would blow up my wave 4 triangle scenario. Just before noon, things were starting to look bad, with panic selling everywhere. The bids on several of the stocks I follow were really thin. Nobody was buying.
But then things started to change. The panic selling stopped and a few Big buyers started to come back in, especially in the large cap stocks. Hmmm? Panic selling followed by large buyers stepping up to the plate. Could we have just seen a Major Bottom?
It’s too early to tell just now, but with the Dow closing above 23,700, it’s still possible that wave 4 completed on Friday and the bounce off the low was the start of the wave 5 rally. My VTI-volume indicators on the Dow, NASDAQ, and SPX are still on Sell Signals, but IF the rally continues into Monday, it’s likely that the indicator will turn positive. The reason I say this is because the volume portion of the indicator on the Dow has already turned positive. All I need now to generate a Buy Signal is to have the momentum portion (the VTI) to turn positive. In other words, all the selling we saw last week did NOT do a lot of technical damage to my indicators. Nor did they do much damage to the overall pattern. Yeah, the indexes got pounded, but if I step back and look at the decline without emotion, the indicators don’t look that bad.
Another thing to keep in mind is that Friday’s decline on the Dow did not even come close to testing the 200-day moving average. The 200 is currently located at the 23,096 level. Friday’s low was 23,360. So, we still don’t have a ‘Rope Jump’. And without a ‘Rope Jump’, I can’t label last week’s decline as Wave 1 of a new Bear Market. I still must go with the wave 4 scenario.
This is one of the reasons I was using 23,700 as my trigger, because I felt that any break of that level would cause an immediate decline to the 200. But this didn’t happen. The panic selling stopped at 23,360 and the Big buyers came in. My custom Money Flow indicator on the Dow (one of the two Coaches) provided the best clue that this was happening. The indicator made a nice move up on Friday and is close to turning positive. Same for the Coach on the NASDAQ. So, IF these guys turn positive early next week, the market could be off the races.
Most Healthcare stocks held up well on Friday, with CAH finishing the day on the positive side. Healthcare and Computers are the only two sectors on the Strong Sector List this weekend. So, the Sector Ration is 22-2 negative. If you get a chance this weekend, you might want to look at the Hockey Stick Patterns on Healthcare stocks like Tenet Healthcare (THC) or Express Scripts (ESRX) or for that matter any Healthcare stock now. These are NOT patterns that one would expect to see at the start of a major Bear Market. No, they’re anything but! To me, they look a lot more like a normal correction in an overheated Bull Market. And while you’re looking at these patterns, just remember that Hockey Sticks are continuation patterns, not terminal patterns.
The Weak Sector List is led by the Utilities, Real Estate, Autos, Telecoms and Energy. It’s a long List, but the Relative Strength Rankings are not all that weak. If the market starts to rally, I would expect a good portion of the Sectors on the Weak List to move over to the Strong List very quickly. Also, keep your eye on Energy stocks like Chevron (CVX). My institutional Money Flow indicator shows that the Big Boys love this stock at current levels. The indicator is just shy of turning positive.
Gold could be very close to a bottom. The VTI-volume indicator is still on a Sell Signal, but the 2-period RSI is oversold (18.1) with No-Trend I place. So, IF gold (GLD) starts to rally from oversold conditions, the Hockey Stick pattern could keep the rally going. My target for GLD is about 10 points higher than current levels. I’m a buyer IF the indicators turn positive. Same for GDX, where the Money Flow indicator almost turned positive on Friday.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for
02-12-2018
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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Category: Professor's Comments, Weekend Strategy Review