Weekend Strategy Review April 21, 2019
Posted by OMS at April 21st, 2019
The markets finished slightly higher on Thursday, with the Dow seeing the largest price gain. The large cap index finished 110 points higher, closing at 26,560. It was up 147 points for the week. The NASDAQ only gained 2 points on Thursday and was only 14 points higher on the week.
The Dow’s intraday high on Thursday was made with a negative Tide. This is an extremely unusual event that is often followed by a downward price movement. Given the divergences that I’m currently seeing in my breadth indicators and the fact that the late April period has not been a good time to be in the markets, I used Thursday’s early rally to exit two of the long positions in the Model Portfolio. This exit might be premature, and we’ll have to look at it once the market re-opens on Monday. But my experience has been that it’s usually NOT a good idea to be long a bunch of stock over a long weekend when the odds are stacked against you. And right now, with a negative Tide and weakening Money Flow indicators, I would rather pay the 5 bucks to spend the weekend on the sidelines.
The markets remain in an Ending Diagonal Pattern that is likely the final wave of the Bull Market. This wave could take the Dow to the 27,000 level or higher. However, as we know, Ending Diagonals can and do truncate so there is no guarantee the Dow will reach its projected target level. And with major negative divergences appearing on several key indicators, this is NOT the time to be bold.
Last week, I talked about my strategy for trading the current rally. I said that I would remain Bullish until the indicators change. So, when I sold the shares of DDM and UWM, without a change in indicators, you might have wondered if I was changing my overall strategy. I’m not. I remain cautiously Bullish. But to tell the truth, all week long I’ve been watching negative divergences develop in my Breadth and Money Flow indicators. So, when I saw the Dow make an intraday high on Thursday with a negative Tide, it really got my attention. Sometimes It’s better to be safe than sorry and in this case, being safe only cost me 5 bucks. I’ll take that insurance every day of the week and twice on Sunday. Besides, the 2-period RSI on the Dow closed with an overbought reading of 95.2. So, the odds are high that the markets will pull back early next week giving me an opportunity to re-buy the positions at a lower price if I choose to do so. We’ll see.
The Dow, NASDAQ, and SPX remain on Buy Signals. The Russell 2K generated a new Sell Signal on Thursday. The signal for Crude Oil turned positive again on Thursday after being Neutral for a few days.
The Sector Ratio remained at 21-3 positive after Thursday’s session. The Strong List continues to be led by Real Estate, Semiconductors, Technology, Cap Goods and Leisure. The three weak sectors were Healthcare, PharmaBio, and Food Drugs. There are still 12 sectors on the Strong List with RS ratings of 1 or zero. With low RS ratings, these 12 sectors can easily fall off the Strong List IF the market has one or two strong down days. In other words, one or two down days could easily change the current positive market conditions and make them negative.
Model Portfolio: The Model sold its shares of DDM and UWM early Thursday. The Model then bought a ‘trial’ position (1,000 shares) of TZA, a 3X inverse leveraged ETF for the Russell 2K. The price paid for TZA was 9.28 per share. TZA closed at 9.37 on Thursday. The Model continues to hold a half position (635 shares) in UCO, the ETF for Crude Oil. The remainder of the theoretical $100,000 Model Portfolio remains in cash ($79.648).
The Model Portfolio has gained $4,525 or 4.48 percent since inception. This translates to an annualized IRR of 35.26 percent. The Model has accomplished this performance under less than desirable market conditions and without an investment in gold, which means that 25 percent of the Model’s available funds have not been put to work.
The Model still does not hold a position in gold as it continues to wait for the timing indicators to generate a Buy Signal. Be patient.
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,
Market Signals for
|DOW||POS||01 Apr 2019|
|NASDAQ||POS||13 Mar 2019|
|GOLD||NEG||11 Apr 2019|
|U.S. DOLLAR||NEU||03 Apr 2019|
|BONDS||NEU||01 Apr 2019|
|CRUDE OIL||POS||18 Apr 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.