Weekend Strategy Review April 26, 2020
Posted by OMS at April 26th, 2020
The markets rallied on Friday on weak breadth and volume. The Dow finished 260 points higher, closing at 23,775. It was down 467 points for the week. The NASDAQ was up 232 points on Friday and up 15 points for the week.
For the past few weeks, the markets have been correcting the crash decline from the 12 February high of 29,568. The corrective rally, or Major Wave B up, reached a high of 24,264 on 17 April. Major Wave B up consisted of five waves in a 3-3-5 pattern, so from a technical perspective, it can be considered complete. So even though the Dow rallied on Friday, it stayed under 24,264. This was a Bid Deal! Why? Well because as long as the Dow says under 24,264, the waves since that high MUST be labeled as part of Major Wave C down. So even though the Dow rallied on Friday, it was likely part or all of Wave 2 up of Major Wave C down, and NOT part of Major Wave B up. In other words, as long a 24,264 is not exceeded, the Dow must now be viewed as starting a new down trend. This was hard to see on Friday, but the odds have now shifted in favor of this scenario.
Major Wave C down should see the Dow fall back down to the 17,000-18,000 level, with 12,000 to 13,000 possible if the wave extends. It should be another crash wave, similar or perhaps worse than the crash wave that started on 12 February. Friday’s light volume and breadth on a strong rally day is something that usually occurs when a market is running out of gas.
But the thing I noticed on Friday was what happened to the Sector Ratio. It fell to 2-22 Negative. That’s right, on a day when the Dow gained 260 points, the Sectors were losing strength big time. And not only did they lose strength in terms of the actual Ratio, the Relative Strength of the individual sectors took a significant hit. The top two sectors on the Strong List, PharmaBio and Computers, had an RS rating of zero! To give you an example of how weak the sectors are, 15 out of the 22 sectors on the Weak List had RS ratings of -4 or weaker. The top 10 Weakest Sectors had RS ratings of -7 or weaker. That’s weak! Looking back, the Sector List didn’t get this negative until 24 February, when the Dow was already down over 1,500 points. So, seeing the Ratio at 2-22 Negative now is concerning.
The top 5 Weakest Sectors were Media, Banks, Financial, Transportation and Leisure. The reason I’m putting the Weak Sector List in Bold is because of what usually happens when the market starts to head down. The weak sectors lead the way down! Just look what happened back in early February. On 21 February, when the DMI on the Dow turned negative, the top six sectors on the Weak List were: Autos, Energy, Transportation, Consumer Products and Banks. How’d they do? Go look for yourself…it’s painful! So next week, if the market begins to head down, which sectors do you think will lead the way lower? I don’t know about you, but you can be sure that I will be watching the weak sectors I highlighted at the top of the paragraph. This past week, a good percentage of my profits came from shorting Media stock Disney (DIS) and the Banks.
The Market Timing Indicators for the Major Indexes are Positive.
The Dean’s List and The Tide also remain Positive.
However, the VTI on the Dow is still not in the Trend Mode and the 2-period RSI is now overbought. Usually when the Dow is overbought with NO TREND, it begins to pull back. That’s what happened last Tuesday, only then the Dow was oversold with NO TREND. The next three days, the Dow rallied for 756 points. So, with the Dow now overbought and in the process of completing a major corrective wave, next week should be remarkably interesting.
Gold and the miners pulled back slightly yesterday, but my VTI indicator remains in the Trend Mode. I used the pullback to buy some Randgold (GOLD) for my own account. With the government printing and handing out all this newly created money and putting us deeper I debt, there’s one thing you can count on. INFLATION! I talked with my coin guy yesterday, and he told me that business wasn’t simply good, it was fantastic! It’s been the best two months he’s ever seen. Gold and gold coins continue to be the place where investors look to put their money in times of crisis. Gold performed exceptionally well during the great depression. Maybe that’s why I couldn’t get the coins I wanted on Friday? He was out! Heck, he’s never been out of the coins I want! That’s why I bought a few shares of GOLD. Strange times?
BTW, I have increased my target for gold (the metal) to 1,900 per oz. This assumes that gold is now in wave 3 of Wave 5 up.
There were NO CHANGES to the Model after yesterday’s session. The Model continues to hold 750 shares of DXD, 800 shares of TWM, 1,600 shares of QID, 40 shares of UCO, and 600 shares of TBT, with a cash balance of $30.282.
Bottom Line: The Major indexes appear close to completing their Major corrective rallies. Major Wave C down, the next crash wave, could start to unfold next week. Protect yourself!
That’s what I’m doing,
h
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.
Market Signals for
04-27-2020
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 23 Apr 2020 |
NASDAQ | POS | 23 Apr 2020 |
GOLD | POS | 22 Apr 2020 |
U.S. DOLLAR | POS | 20 Apr 2020 |
BONDS | NEU | 06 Apr 2020 |
CRUDE OIL | NEG | 24 Feb 2020 |
DISCLAIMER
As always, the Professor never makes recommendations. The information is provided on an educational basis so you can have informed discussions with your financial advisors and/or accountants about your individual investment decisions.
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.
Category: Professor's Comments, Weekend Strategy Review