Weekend Strategy Review April 19, 2014

Posted by OMS  at April 19th, 2014

The Dow fell 16 points on Friday, closing at 16,408.  It was up 382 points for the week.  The previous week, the Dow was down 385 points, so even though there has been several large moves within the past two week, the markets have essentially remained unchanged.

When markets make large moves without going anywhere, it’s usually because they are consolidating for the next major move.  And because stocks usually leave consolidation patterns in the direction they enter these patterns, the odds continue to favor a move toward the 17,000 level once the current consolidation pattern completes. 

The only question in my mind now is when. If the Dow is forming a 3-3-5 Flat pattern, then it could still need one more thrust lower to the 15,850 level before the next rally begins.

On the other hand, if the consolidation pattern is a ‘normal’ a-b-c correction, then the Dow could have bottomed last week at the 16,015 level, and the past 4 days of positive trading could be the start of the next rally wave.  If the Dow starts to break above 16,630, it would confirm the later.

At this point the Dean’s List and most of my PT indicators are still negative. Also The Professor has still not generated a Buy Signal, so I have to favor the 3-3-5 Flat scenario. 

But all these mixed signals are really not giving me any heartburn now, mostly because I’m not trading a lot of ‘market’ stocks.  I have been focusing on energy.

I have also started to scalp gold to the short side.  This is what we do when the markets are giving us mixed signals.  Instead of hoping for a new tend to develop, we take advantage of the large interday moves that cause the consolidation patterns to form.  While the Dow was having a flat day on Thursday, it was a good day to be shorting gold.

A scalp short of RGLD entered on the 5s just after noon on Thursday resulted in a 0.50 profit.  A long in DUST (an inverse gold ETF) had similar results. 

Both of these trades were set up when GLD gapped down on 15 April and turned negative on the 60s.  Remember, my big picture strategy for gold (the metal) is that it will start to trade lower during the next 1-2 months, possibly down to the 1150 level or lower.  So while I watch for the indicators on the Daily’s to turn negative, I’m also watching the 60s for early signs. When I saw the 60s turn Red on 15 April after the gap down, I started to look for opportunities to scalp gold on the 5s.  If gold starts to enter a down-trend on the Daily’s, I’ll start holding these short positions overnight as Position Trades.  But right now, all I’m doing is taking quick, short-term profits while I wait.

Energy continues to be the strongest sector, followed by Utilities and Food.  In other words the sectors that usually lead the market higher, like Financials, Technology, and Healthcare, are still lagging.  A quick look at 20 sectors I track  shows that 16 still have negative trend scores.  If the market is to move higher, the majority of sectors will have to start showing positive tend scores.

So my Bottom Line for next week is to wait.  With mixed indicators, unclear consolidation patterns, and no signal from The Professor, I’m just waiting.  And as I wait, I’ll continue to look for opportunities to short gold on the 5s.

Have a great weekend,

That’s what I’m doing,

h

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