Weekend Strategy Review April 2, 2017

Posted by OMS  at April 2nd, 2017

The Dow fell 65 points on Friday, closing at 20,663.  It was down 66 points for the week.  The NASDAQ finished up 3 points on Friday and up 83 points for the week.

Friday’s decline appeared to be part of a small corrective wave ‘b’ down.  If this is the case, the markets should rally early next week to the 20,800 – 20,900 level to complete wave ‘B’ up before dropping to 20,000 or below in wave ‘C’ down.

The attached chart of the Dow shows the most likely wave count.  Minor wave ‘b’ down has formed the Blade of a small Hockey Stick pattern.  Hockey Sticks are continuation patterns, so once wave ‘b’ completes, the Dow should rally into early April.  The pattern suggests that once this rally is complete, the markets will start a decline to the 20,000 level to complete the A-B-C pattern for Major Wave ‘D’ down.  April could be a very negative month for the markets.

There was a small change in the A-D oscillator on Friday so we need to be on the lookout for a Big Move early next week.

Friday’s Sector Report continued to show strength in the sectors.  The report had 22 strong sectors and only 2 weak.  The Semiconductors, Banks, Leisure, and Transports continue to lead, with Energy and Service lagging.  The fact that the Sector List has remained strong during the wave ‘b’ retracement tells me to expect higher prices once the retracement is complete.

Same for the Professor algorithm.  Friday’s run of the algorithm showed 29 stocks being highlighted as longs, with only 2 shorts.  That’s a pretty strong report on a day when the Dow fell 65 points.  It’s another reason why I believe the market will rally into early April.

DIG is back on the Dean’s List.  At this point, the DMI on DIG is still negative, so I’m still being somewhat cautious about energy.  The VTI has started to head up and now has a reading of 36.8, so DIG is no longer in a VTI down trend.  However, the ETF is currently trading about a point below its 50 and 200 day moving averages, so it needs to make a Rope Jump to show me it wants to change direction.  Like I said, I’m still cautious, but now that DIG is on the Dean’s List, I’ll start to watch the sector.

Bottom Line:  If the Dow rallies early next week to the 20,800 level, I’ll start looking to short the market using inverse index ETFs. I’ll be buying a few shares of DXD and TWM using the indicators on the 15 min bars as a trigger. Then if the Dow moves back below the 20,800 level, I’ll add to these shares for a potential move to 20,000 or below. The decline could make for a nice position trade.

BTW, IF the wave count outlined in the attached Dow chart is correct, once the Dow completes Major Wave ‘D’ down, it should set-up a summer rally to new highs. It’s still a bit premature to make an estimate on how high the summer rally could go, but 22,000+ is not unreasonable. But before this can happen, the market needs to complete Major Wave ‘D’ down. If it doesn’t, the overall the pattern will change and there likely won’t be a summer rally.

Have a great weekend.

That’s what I’m doing,

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Market Signals for

04-03-2017

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