Weekend Strategy Review July 1, 2018
Posted by Laurie Liessmann at July 1st, 2018
The markets finished the week with a rally. The Dow closed 55 points higher at 24,271 after being up over 294 points intraday. However, even with Friday’s rally, the Dow was still down 309 points for the week. The tech heavy NASDAQ finished 7 points on Friday but down 183 points for the week.
Well, I was looking for an impulsive rally to start the day and that’s what we got. It’s possible that Friday’s early rally was sub-wave 3 of Wave 1 up, with the late afternoon pullback being part or all of sub-wave 4. If this is the case, the Dow should make another rally leg early next week for sub-wave 5 to complete Wave 1 up. The 50-day moving average on the Dow is currently located at the 24,650 level, so IF the market starts to rally next week, students should watch for a ‘Rope Jump’. This would identify the move as Wave 1 up of Major Wave 5 up.
IF this rally happens, it would likely turn several of the cockpit indicators positive. Friday’s trading caused the volume portion of my VTI-volume indicator on the Dow, NASDAQ, and SPX to turn positive. It’s a start. So now all we need to see is the momentum portion of the indicator (the VTI) to turn positive. If it does, the indicator will generate a Buy Signal. After this indicator generated a Sell Signal on 15 June, the Dow was down 1,093 points at its low. So, you can see why I’m anxiously waiting for this indicator to turn positive.
This weekend, I want to review a few things, so we can think about where we are in the pattern. Firstly, it appears that the large triangle consolidation pattern that the Dow has been in since 26 January, is either complete or nearly so. Triangles are usually Wave 4’s. So, IF this is what’s happening, the next major move should be Wave 5 up. Wave 5’s almost always exceed the Wave 3 high, so as a minimum, the Dow should test the 26,617 level. If there’s a ‘through-over’ wave, the Dow could trade as high as the 28,000 level. This is the reason I’m excited and waiting for my VTI-volume indicator to turn positive.
Looking at the trading action this past week, Thursday’s low was 23,997. So, the rally off that low plus the impulsive action into Friday’s intraday high was a move of about 512 Dow points. Hmmm? That’s a lot of Dow points when you step back and look at it this way. The IF you add on another 150 points or so for a ‘Rope Jump’ which would happen IF sub-wave 5 up does its thing, that would be a total of 660 Dow points. Do you see where I’m going here? A move of 660 – 700 Dow points would make for an almost perfect Wave 1 up ‘Stick’ ….IF the Dow is going to 26,617 or higher.
So next week, students should watch the Dow for a potential ‘Rope Jump’. BTW, you won’t see this (a Rope Jump) on the NASDAQ because the tech stock index is already into its Major Wave 5 up. The recent pullback on this index is likely corrective Wave 2 down within Major Wave 5 up. So, the next move up on the NASDAQ will likely be Wave 3 up…an impulse wave. Students should consider this when choosing stocks to participate in the next rally phase of the markets. In other words, IF the Dow is going to have a ‘Rope Jump’ to complete Wave 1 up, its next short-term move should be a consolidation period for Wave 2. The NASDAQ doesn’t have to do this. It’s already consolidated. So, if it starts to move up next week, it should continue to rally as Wave 3 of Major Wave 5 up unfolds. This is why I’m anxiously waiting for the technology sectors to move onto the Strong Sector List.
On Friday, the Ratio fell slightly to 9-15 negative. On the surface, it would appear the Ratio is going in the wrong direction for a rally. But when I look at the Relative Strengths of the Sectors on the Weak List, they’re not all that weak. A nice rally as we move into the Independence Day Holiday could change the list dramatically.
The Strong Sector List continues to be led by Utilities, Retail, FoodDrugs, Consumer Products and Media. This List is way too defensive for me to get excited about. I need to see Technology, Cap Goods, Semis, and the Materials on the List before I get excited. We’re not there yet. But remember, we’re only working on the preliminary stages of Wave 1 up. Give it time.
BTW, UUP fell 0.20 cents on Friday after my VTI-volume indicator generated a Sell Signal. The drop caused UUP to fall to the very bottom of the Dean’s List. It also caused UDN, the inverse ETF for the Dollar to re-appear on the List. So, with both the positive AND inverse Dollar ETFs near the bottom of the List, it tells me the Dollar is in transition. It could be starting to move down. If the Dollar continues to decline, it would be GREAT for the market and GREAT for Cap Equipment stocks like BA and CAT. Students should watch the correlation between the Dollar and a stock like CAT. As long as UND, the inverse Dollar ETF, stays on the Dean’s List, CAT is going to sell a lot of those big yellow tractors.
Have a great weekend.
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