Weekend Strategy Review July 21, 2019
Posted by OMS at July 21st, 2019
The markets rallied out of the gate on Friday, but then pulled back to close lower. Seems there was a snafu at the Fed, where initial comments by New York Fed President John Williams late Thursday on Fed easing were walked back later when a spokesman said William’s comments were “academic” and not about current policy. Wow…talk about inept! The markets are anticipating a 50-basis-point cut at the next Fed Meeting on 30-31 July, so any news that puts this in jeopardy, like walking back a Fed President’s comments, is interpreted as negative. The Dow finished with a loss of 69 points, closing at 27,154. The Dow was down 178 points on the week. The NASDAQ was down 61 points on Friday, and down 98 points for the week.
Friday’s initial 120 point rally and subsequent 189 point decline was the Big Move predicted by Thursday’s small change in the A-D oscillator.
Friday’s decline caused the market timing indicator for the Dow and NASDAQ to turn Neutral. The timing signals for the SPX and Russell 2K remain on a Buy Signal.
The Tide and the Dean’s List turned Neutral after Friday’s session. The Money Flow indicators on both the Dow and NASDAQ have turned negative. So institutional money is starting to leave the equity markets.
From a technical perspective, the major item I noticed on Friday was that the CCI on the Dow moved below 100, taking it out of the Trend Zone. The NASDAQ moved out of the Trend Zone on 17 July. As many of you will recall from Class, when a stock or ETF moves out of the Trend Zone, especially if it has had a long run in the Zone, it’s usually a good time to take profits. Once the trend is over, you always should ask yourself, ‘Why am I continuing to hold this security?” With no trend in place your money is at risk. And with the Dow at target highs, the odds are high that the next move will be down.
Also, from a technical perspective, students should note that even though the CCI has moved out of the Trend Zone, the indicator is still well above the zero line. So, until the CCI turns negative, the markets will likely continue to chop around for the next week or so, with a bias toward the negative side. Then once the CCI (the momentum) turns negative, the down slide will begin. This could begin right after the Fed announcement on 31 July. So, start thinking about what you’re going to do if you see this start to happen. What I’m telling you is that the top (27,365) may already be in.
It’s still a bit early to talk about how far down the Dow will drop with any certainty. But for now, a decline to the recent 3 June low of 24,680 appears likely. If that low doesn’t hold, it’s almost certain that the 26 December low of 21,713 will be tested. The reason I say this is because the rise since 26 December has been a five wave Ending Diagonal Pattern, and the target for EDs is where they began.
The one problem I have with the above analysis is that from a technical perspective, I can’t tell yet if the decline I see coming is the start of the new Bear Market or just Wave ‘B’ down of a 3 wave decline, with Wave ‘C’ up to follow sometime later this year or into 2020. At this point, I believe the odds for a significant decline (more than 2,400 Dow points) as being high, but it might not be the end of the Bull Market. If the decline holds the June lows, it’s still possible that a Wave ‘C’ rally from those levels will develop into early 2020.
But here’s the thing: We don’t know if the later will happen. And…we can’t take the chance. Once the Dow starts down, if the momentum begins to pick up, it will be easy for the market to break below the 3 June low as there isn’t much support there (it was a spike low). And if this happens, the first leg down of the new Bear Market will be underway. So, pay attention to the timing signals next week. If they begin to turn Negative, it will be time to start managing your money. BTW, IF you have a financial advisor and he hasn’t called you recently, it’s time for you to call him and have a serious discussion about how he plans to protect your assets. Remember, if he says he’s watching your money, that’s NOT a valid response. Watching is NOT a plan. You should insist on seeing his plan. After all, it’s your money!
The Sector Ratio weakened to 14-10 Positive after yesterday’s session. However, 8 of the 14 sectors on the Strong List have RS Ratings of 1 or zero. So, the Strong List is really not that strong. One good down day next week could turn the Sector Ratio negative. The Strong Sector List was led by Household Products, Material (includes gold), Insurance, Telecoms, and Semiconductors. The Weak Sector List was led by Energy, Retail, Service, Transportation, and PharmaBio. Students should note that the trannies are now in the top 5 of the Weak List. This is not a good sign for the economy.
Model Portfolio: There were NO CHANGES to the Model after yesterday’s session. The Model still holds 500 shares of TBT, the inverse ETF for Bonds and 800 shares of UGL, a 2X leveraged ETF for gold.
After yesterday’s session, the Model is up 20.67 percent. This translates to an annualized gain of about 61 percent. On Thursday, prior to Friday’s pullback in gold, the Model reached a new high of 22.6 percent (68.2 percent annualized). The Model continues to hold a lot of cash, waiting for high probability opportunities to put the cash to work. If the timing signals on the Dow and NASDAQ turn negative next week, the Model will begin putting its cash to work. The two indicators I’ll be watching are (1) the market timing signals for the Dow and NASDAQ and (2) the Sector Ratio. If these two indicators turn negative, the Model will start looking to buy shares of DXD and QID.
The Model continues to look for opportunities to add shares to its current position in gold. Spot gold closed at 1,425 on Friday. The pattern, an impulse wave 3 up, suggests gold will be trading between 1,600 to 1,650 later this year or early 2020.
Crude Oil is too volatile to own now. Yesterday, Iran captured a British flagged tanker passing through the Strait of Hormuz (are they nuts?). Crude is working its way through a long-term triangle, so yesterday’s news from the Gulf will only make trading crude more difficult. I’d much rather trade something in a longer-term Wave 3 up, like gold, than try to trade the a-b-c waves of a complicated triangle. That’s why I continue to look for pullbacks in gold.
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.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for
07-22-2019
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 10 Jul 2019 |
NASDAQ | NEU | 13 Jun 2019 |
GOLD | POS | 03 Jun 2019 |
U.S. DOLLAR | NEU | 15 Jul 2019 |
BONDS | NEG | 17 Jul 2019 |
CRUDE OIL | NEG | 18 Jul 2019 |
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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