Weekend Strategy Review August 11, 2019

Posted by OMS  at August 11th, 2019

The Dow performed as expected Friday, falling to the 26,100 level for wave ‘B’ down before bouncing to 24,400.  The Dow finished down 91 points on Friday and down 198 points for the week. The NASDAQ was down 80 points on Friday, and down 45 points for the week.

The market timing indicator on the Dow, NASDAQ, SPX and Russel 2K remain on Sell Signals.

The Tide, and Dean’s List are Negative.  The Money Flow indicators are mixed.

In Friday’s comments, I discussed how I though retracement Wave 2 up would unfold. I said it should consist of three distinct waves.  The three waves could form either a simple a-b-c pattern or a more complex 5-3-5 flat or zig-zag pattern.  So far, Waves ‘A’ up and ‘B’ down appear to be complete. Friday’s afternoon rally off the 26,100 level appeared to be the start of Wave ‘C’ up of the pattern.  This wave should complete somewhere between the 26,384 to 26,600 level+/-.  So, Friday’s intraday high of 24,413 might have done the trick. We’ll see.

One of the reasons that Wave ’C’ up of Wave 2 up could be complete is that the rally off the 26,100 level consisted of five waves.  You can easily see these waves on a 2 minute chart of the Dow.  Also, 15 minutes before the close, the Dow pulled back impulsively, and closed below the micro-wave 2 low, something that should not happen.  Any impulsive move down now is cause for concern.  Impulsive moves are one of the things that define Wave 3’s.  So again, it’s possible the Wave 2 up is complete. If this is the case, the Dow should begin to move significantly lower next week.  Again, it’s still too early to tell how low the Dow will decline during Wave 3 down, but the 24,680 level appears to be a reasonable initial target. If this decline happens, it will identify the move as Wave 3 down of the new Bear Market… a Bear that should last for several years.

The Sector Ratio strengthened to 12-12 Neutral after Friday’s session.  The Strong Sector List was led by Healthcare, Household Products, Insurance FoodDrugs and Telecoms. The Weak Sector List was led by Energy, Retail, Autos, Service, Technology and Transportation.

Model Portfolio:  There were NO CHANGES to the Model during Friday’s session.  The Model remains 100 percent invested in cash.  Since inception, the Model has gained $27,084, which translates to a 69.78 percent return on an annualized basis.

If the Dow starts to decline next week, the Model will look to establish positions in DXD and QID, two inverse ETFs for the Dow and NASDAQ-100. At this point, they appear to be the best bets on the Board.  The patterns in gold and crude oil are uncertain.

Crude Oil broke below its pattern low last Wednesday, so before I can get serious about a CO trade, I would need to see my VTI-volume indicator turn positive.  As of Friday, it’s still negative.  On the other hand, I don’t want to short Crude Oil either, mostly because the longer term pattern is very positive.  So, trying to squeeze a few points out of a short CO trade looks like a fool’s game to me.  I’ll pass.

Same for gold.  Gold and mining stocks had a nice run, but both are overbought at this point (2-period RSI on GLD is at the 70+ level).  The charts suggest that gold (the metal) could pullback to 1,420 in Wave 4 down, before rising above 1,600 later this year. So, with overbought conditions, I’m just going to wait before buying gold again.

After Thursday’s rally that saw IYT rally back to the 186 level, the transportation ETF dropped 2 points on Friday.  The up-down trading action appears to be forming a “blade’ of a negative Hockey Stick Pattern.  So, if ITY begins to decline from this ‘blade’ next week, students should pay attention to the 175 level. This level remains a critical level for the transports.  If 175 is broken, the transports will likely get hammered!

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.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

08-12-2019

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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.