Weekend Strategy Review April 8, 2019
Posted by OMS at April 28th, 2019
The markets fell early on Friday and then rallied into the close. The Dow finished up 81 points at 26,543. It was down 16 points for the week. The NASDAQ finished up 28 points no Friday and was up 148 points for the week.
The markets continue to struggle with breadth that continues to weaken and narrow. Fewer and fewer stocks are leading this market higher.
With decreasing and diverging breadth, the markets still appear to be developing some type of short term top. It’s still not clear whether this top will be wave 1 up of a five wave Ending Diagonal Pattern or the conclusion of the larger pattern. Right now, there are several ways the large Ending Diagonal Patterns could end as Ending Diagonals are basically triangle patterns. As long as the market timing indicators remain positive, it’s likely that the markets will chop higher into mid-May. On the other hand, with weakening and diverging breadth indicators, the larger pattern could truncate at any time.
The way I like to trade potential declines from an Ending Diagonal Pattern is to watch the market timing indicators. If/when they turn negative, I’ll begin to add inverse index ETFs to the Model Portfolio. Students should realize that IF the markets continue to develop an Ending Diagonal Pattern, the target for this pattern is where it began. In the case of the Dow, the pattern began with the March 11 low of 25,208.
The Tide remains mixed with 3 of the 4 breadth indicators being negative. The Hi-Lo indicator is the only breadth indicator that remains positive. Right now, this indicator is being trumped by the large negative divergences in the Summation Index, Up-Down oscillator, and A-D oscillator. Divergences in these indicators are not as easy overcome as the more sensitive Hi-Lo indicator which continues to flip-flop. Almost any down day now could turn the Hi-Lo indicator negative, while it will take some doing to cause a positive change in the Summation Index. Over the years, I’ve learned to respect what the Summation Index is telling me. The Index is NOT a timing indicator, but it’s probably the best signal I know of for warning traders of a approaching decline.
The Dean’s List remains positive.
The market timing indicators are currently mixed. The Dow remains on a Neutral Signal while the NASDAQ and SPX remain on Buy Signals. The Russell 2K moved to a Neutral Signal from a Buy.
The Sector Ratio fell to 18-6 positive after Friday’s session. The Strong List was led by Real Estate, Media, Semiconductors, Household Products, and Leisure. The Weak Sector List was led by Healthcare, PharmaBio, Service, Food Drugs and Consumer Products. There are still 10 sectors on the Strong List with RS ratings of 1 or zero. With low RS ratings, these 10 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: There were NO Changes to the Model after Friday’s session. The Model continues to hold a ‘trial’ position (1,000 shares) of TZA, a 3X inverse leveraged ETF for the Russell 2K. The remainder of the theoretical $100,000 Model Portfolio remains in cash ($95,980).
The Model still does not hold a position in gold as it continues to wait for the timing indicators to turn positive. GLD moved to a Neutral Signal on Friday after gaining 0.80 cents to close at 121.37. BTW, the timing indicator for the silver ETF, SLV, also turned Neutral on Friday. Both metals appear to be in the process of completing a Major Wave 2 bottom. If this analysis is correct, both metals could be getting ready to start a significant move higher as Major Wave 3 up unfolds.
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||26 Apr 2019|
|NASDAQ||POS||13 Mar 2019|
|GOLD||NEU||26 Apr 2019|
|U.S. DOLLAR||POS||23 Apr 2019|
|BONDS||NEU||26 Apr 2019|
|CRUDE OIL||NEU||26 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.