Professor’s Comments June 19, 2019
Posted by OMS at June 19th, 2019
The markets rose sharply yesterday on relatively high volume. The rally confirmed that final Wave ‘C’ up is underway and eliminated the possibility of the H&S Pattern.
The Dow finished with a gain of 353 points, closing at 26,465. It reached an intraday high of 26,527. The NASDAQ and SPX were up 109 and 28 points, respectively. Volume on the NYSE was heavy, coming in at 108 percent of its 10-day moving average. There were 225 new highs and only 28 new lows.
There were NO Changes to the market timing indicators for equities after yesterday’s session. The Dow, NASDAQ, SPX, and Russell 2K remain on Buy Signals.
The Fed will announce its latest policy on interest rates at 2pm today. After an extremely poor Jobs Report, the markets expect the Fed to lower interest rates. If the Fed disappoints, it could cause equity prices to pullback.
Yesterday’s one percent rally coming the day before a Fed announcement has an interesting history as the S&P was up 8 times and down 11 the following week. So, the odds for additional upside gain this week are less than favorable. Further, history also shows that looking out 2 weeks after the one percent move, the S&P was only up 6 times and down 13. In other words, yesterday’s rally might have been part of an exhaustion top. We’ll see.
Just remember, that Wave ‘C’ up is the final wave of a termination pattern that can end at any time. The Dow does NOT have to go to its projected target near 27,000. This is NOT the time to be aggressive!
The Tide, Dean’s List, and DMIs remain positive. The Money Flow indicators on the Dow and NASDAQ have turned slightly positive. So, the institutional selling I was seeing two weeks ago has stopped, at least for now.
The Sector Ratio strengthened to 18- 6 positive after yesterday’s session. However, 10 of the sectors on the Strong List have RS Ratings of zero or 1, so the Strong List is still not very strong. If the market starts to decline, all these sectors will likely drop off the Strong List turning the Sector Ratio negative again. The Strong Sector List continues to be led by Household Products, Real Estate, Insurance, Food Drugs, and Telecoms… all defensive sectors. The aggressive sectors, like the Semis, Technology, and Cap Goods are still near the bottom of the Strong List with low RS ratings. The Weak Sector List was led by Energy, Service, Retail, Utilities and Autos.
Model Portfolio: The Model sold two of its gold positions late yesterday. After experiencing a nice rally since 30 May, gold was EXTREMELY overbought. So, with the Fed announcement looming, shares on NUGT and GDX were sold for a profit at 21.95 and 23.60, respectively. Remember, NUGT was purchased as a trade only. As a 3X leveraged ETF, NUGT is NOT suitable as a longer-term hold. The Model kept its shares of UGL, as it was not as overbought as the gold miners.
After yesterday’s session, the Model has gained $16,354 since inception or 16.4 percent which translates to an annualized IRR of 62.4 percent. The Model currently holds a cash balance of $94,419. The Model will be looking to re-enter the gold positions it sold yesterday once the dust settles after the Fed announcement.
BTW, I also sold a portion of my own position in gold yesterday, keeping the short position in Put Options on NUGT. The reason I lightened up on gold is because the metal appeared to have complete wave 1 up within Wave 3 up during yesterday’s session. If this is correct, gold should begin to pull back as minor wave 2 unfolds. This should give us several opportunities to re-purchase our mining shares, hopefully at lower prices.
During yesterday’s rally, I traded NUGT several time to the long side, using the 2-period RSI to identify places where the ETF was oversold. I also traded Johnson Controls (JCI) to the short side for a small profit. JCI is another stock I’m placing on my watch list of potential shorts. With the stock just off its yearly highs, 2 of the 3 Money Flow indicators I watch are negative, with the third just barely positive. The research I’ve been doing for the past few months clearly shows that when all three of these Money Flow indicators turn negative, its usually fatal for the stock. Also, the pattern on JCI, an Ending Diagonal, is like many stocks in the S&P. The target for an Ending Diagonals is where it began, which on JCI is the December low of 28.3.
BTW, I’m also watching Intel (INTC) for the same reason.
The Model continues to watch Bonds. TMF and TLT rose again yesterday (as expected) but are now approaching the target I mentioned a few weeks ago. Today could be a big day for Bonds with the Fed announcement on interest rates later this afternoon. Remember, the pattern suggests that once the target is hit, Bonds are in for a major decline. If this happens, the increase in long-term interest rates will clobber stocks and the economy. So, pay attention to what happens to Bonds today and during the next week or so, especially if Bonds fall causing TBT to replace TMF and TLT on the Dean’s List.
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.
That’s what I’m doing,
h
Market Signals for
06-19-2019
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 05 Jun 2019 |
NASDAQ | POS | 13 Jun 2019 |
GOLD | POS | 03 Jun 2019 |
U.S. DOLLAR | NEU | 14 Jun 2019 |
BONDS | NEU | 10 Jun 2019 |
CRUDE OIL | NEU | 14 Jun 2019 |
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Category: Professor's Comments