Weekend Strategy Review April 8, 2018
Posted by Laurie Liessmann at April 8th, 2018
Good Morning. Lots to cover this morning after yesterday’s debacle, so let’s get started.
First the Jobs Report: It was terrible. Don’t let anyone tell you otherwise. It was terrible! The BLS said the U.S. only added 103,000 jobs in March when 185,000 were expected. The 185K expected number was already down from the 200K that we saw earlier in the year. The poor report triggered a sell off by investors already worried about an economy that could be slowing due to Fed tightening and a Trade War with China. The Dow was down over 700 points intraday but recovered all but 572 of those points by the close. The Dow finished down 170 points for the week, closing at 23,934. It got as low as 23,738 intraday, still over 150 points from its 200-day moving average at 23,580. The NASDAQ was down 161points on Friday and down 148 points for the week.
For the past few months and in my Class About Nothing, I have been talking a lot about Trending and Non-Trending Markets. Now you know why. There’s a BIG difference on how you trade them. If you were long going into Friday’s Jobs Report, your portfolio is probably a little lighter today. If you were on the sidelines, you didn’t care what the report said. You were ready to scalp the market in either direction. The direction didn’t matter.
Also, because I MUST assume that once the Dow broke below its 200-day moving average on 2 April, the ‘Rope Jump’ was part of the initial wave structure of a new Bear Market. At this point, the exact wave count is still not clear, but that really doesn’t matter. What matters is that because the decline that started in late January was so steep, over 3,200 Dow points, we should expect the retracement rallies that make up any type of Wave 2 structure to be exceptionally large. This is what’s causing the outsized moves we’re currently seeing.
But getting back to my original point, the thing students need to realize is that since 30 January, the Dow is no longer in the Up-Trend Mode. On 30 January, the 35-period CCI moved below +100 telling us the Up-Trend was over. So, with the Up-Trend over, we had to start looking for signs that a new Bear Market was starting. The ‘Rope Jump’ of the 200 merely confirmed this. But it was the change in CCI that told us how we must start to trade the new Bear. No longer could we just ‘hold’ our positions. Now we had to start scalping. This was all dictated by the change fact that the CCI was no longer in the Trend Mode.
This in why I was on the sidelines going into Friday’s session. With a reading of -35.4, the 35-period CCI was telling me there was NO Trend in place. And without a solid trend in place, the market is no place for my money. Without a trend, placing a bet on the market is just like going to a casino. We don’t do this in The Professor’s Methodology. We always want to have the odds stacked in our favor. That’s why we use indicators, patterns and Lists. And we us them in a trend. No-trend = No Trade. Or at least no Buy and Hold Trades. I’ll say it again: If you buy and hold something with No Trend in place, you’re just gambling. You’re hoping that a new trend will develop in your favor. Hmmm? That’s no way to trade. We don’t trade based on hope. We use indicators to tell us a trend is developing and then go with the Trend.
If there’s No-Trend in place, we scalp using the short-term bars. That’s it. No exceptions.
If you have been doing this for the past few weeks, you’ve had several BIG CIGAR days. If you haven’t, you’re probably feeling miserable about now. Stop feeling miserable and start feeling good about your trading again. Start trading the way the CCI is telling you to trade. Don’t fight it! Right now, the CCI is telling you to be out of the market by the close every day. When the indicator is between -100 to +100, with No Trend in place, it’s also telling you to expect large swings in volatility. With the pattern for Wave 2up and the sub-wave counts not clear at this point, the only thing we know is that the market is developing some type of corrective pattern. And we already know the swings within the correction will be large because of the 3,200-point decline in Wave 1. That’s all we know right now. Next week, things could change.
Next week, if the Dow starts to decline and falls below the 200, the 35-period CCI should re-enter the Down Trend Mode (below -100). If this happens with my combination VTI-volume indicator back on a Sell Signal, I can start holding a few shorts again. Again, I’m going to let the 35-period CCI tell me how to trade. If the indicator goes into the trend mode, I’ll hold short positions. If it doesn’t, I’ll continue to scalp.
What will I be trading? Well, with a Sector Ratio still showing 23-1 negative, I certainly don’t want to be long. Household Products continue to be the only strong sector, and I can’t get excited about soap and diapers. On the other hand, the Weak Sectors all pretty much look the same. Lots of -2s, -3s and -4s. No stand outs besides the REITS on the short side, so maybe I’ll short a few indexes. BTW, RWR is the ETF for the REITS. My combination VTI-volume indicator on RWR is on a Sell Signal on both the Daily and Weekly charts.
I’ll also be looking to buy gold. The miners held up well on Friday, and I still love the pattern. If gold (the metal) breaks above 1370, it could be a nice place to be. Gold could see 1600+ once Wave 3 up gets underway. I bought a few shares of GDX and RLGD (spec) on Friday. If you look at the Hockey Stick pattern forming on their hourly charts, you’ll understand why. BTW, gold was one of the few sectors that performed well during the 2007-2008 crash. I plan to continue buying shares in GDX as long as its VTI-volume indicator remains positive.
Remember, the Fed is now in the selling mode. The Fed is no longer your friend if you’re still long. Through in the possibility of a Trade War with China, a $20 Trillion debt that must be serviced (mostly by China, the same country that we’re about to start a trade war with), and a Treasury Department that’s now struggling to find $20-25 billion a month in lost tax revenue, and a slowing economy as evidenced by the horrible jobs report. You might understand why I’m not too excited about the long side.
Watch the CCI early next week. If it moves into the negative Trend Mode, you might want to take steps to manage your money.
Have a great weekend.
That’s what I’m doing,
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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.