Weekend Strategy Review August 13, 2017
Posted by OMS at August 13th, 2017
The markets appear to have topped this week. The Dow rose 14 points on Friday, but was down 235 points for the week at 21,858. The NASDAQ rallied for 40 points on Friday but was down 40 points for the week.
The Dow, SPX, and NASDAQ look to have finished their large degree Ending Diagonal Patterns and are starting to head down. The cockpit indicators are turning negative and two inverse index ETFs for the U.S. markets are now on the Dean’s List.
Breadth on the NYSE continues to diverge from price, a classic sign of a tired market. Yesterday’s small rally did not change any of the breadth indicators that make up The Tide, so The Tide remains negative.
The Advance – Decline indicator is at its lowest level since early March, even though price on the Dow is over 1,000 points higher. Pay attention to this important warning!
With a negative Tide, negative cockpit indicators, and two inverse index ETFs now on the Dean’s, I have started to establish a few ‘trial’ positions in inverse index ETFs.
On Friday, when the Dow was up about 50 points, I bought trial positions in QID and SH, the inverse index ETFs for the NASDAQ and S&P 500. My combination VTI-volume indicator on the NASDAQ and SPX is negative and on a Sell Signal. Next week, with Sell Signals on the NASDAQ and SPX, I will continue to look for opportunities to add to my short (inverse) positions on any rallies.
The same indicator is also negative on the Russell 2K, but neutral on the Dow as the volume portion of the indicator is still positive. So as of Friday, 3 of the 4 major indexes U.S. indexes are on VTI-volume Sell Signals.
Now that it appears the Ending Diagonal Patterns for the U.S markets are complete, my initial target for the Dow is the 20,400 level. This level is where the pattern began on 19 April. My initial target for the SPX, currently trading at 2,438, is 2,329. My target for the NASDAQ (QQQ) remains at 130. The Q’s closed at 142.10 on Friday.
The U.S. markets are not alone in starting to show signs of entering a Major Bear market. I’m seeing similar patterns in many of the international markets I follow. For example, the German DAX has completed all five waves of Major Ending Diagonal that started in 2003. EWG, the positive ETF for Germany has fallen off the Dean’s List and my VTI-volume indicator is now on a Sell Signal. My initial target for EWG is 28.28. After that it’s 24.58. Final targets are significantly lower. EWG closed at 30.4 on Friday.
BTW, the German DAX which closed at 12,014 on Friday, still has NOT broken below its lower trend line support near 11,000. And until it does, it’s possible that the prices can continue to push slightly higher into the fall. However, we know that Ending Diagonal patterns can and do truncate, so the fact that the VTI-volume is negative on EWG is troublesome. Why do I worry about the DAX? I worry because pattern on the DAX suggests the eventual target is slightly below the 4,000 level. If this happens, the U.S. markets will see similar declines.
During the week, I mentioned that EPV, the inverse ETF for Europe is now on the Dean’s List. My combination VTI–volume indicator is on a Buy Signal for EPV. My initial targets for EPV are 44.0 and then 57. EPV closed at 35.5 on Friday.
Students should note that NO positive European ETFs are currently on the Dean’s List. So EPV can be used as another ‘Stick in the Sand’ for Europe. As long as UPV, the positive ETE for Europe AND other European country ETFs, like EWG (Germany), EWQ (France) and EWD (Sweden) remain OFF the List, it’s likely that European stocks will be moving lower.
Looking at Asia, Hong Kong’s HIS has formed an Ending Diagonal that suggests prices could decline 30-35 percent. EWH, the ETF for Hong Kong closed at 24.14 on Friday. My initial target for EWH is near the 28 December 2016 low of 19.27.
China’s SSEC is showing a similar Ending Diagonal that suggests a 30 percent (or more) decline is coming. The ‘Sticks in the Sand’ I use for China are FXI (positive) and FPX (inverse). Right now, FXI (positive) is still on the Dean’s List. When it falls off the List and FXP appears, I’ll start looking to short China by buying FXP. BTW, EPP, the positive ETF for Asia (less Japan) is still on the Dean’s List with a RS ranking of zero. I want to see EPP off the List too.
So everywhere I look…. in the U.S., in Europe, and in Asia, I’m seeing Ending Diagonal Patterns that are either complete or in the process of completing. I’m also seeing indicators turning negative and inverse ETFs starting to appear on the Dean’s List.
Remember, the combination of Patterns, Indicators, and Lists we use in The Professor’s Methodology called the post-election rally (Wave 5 up) of the five wave sequence that started back in March 2009. These same Patterns, Indicators, and Lists also called the final fifth wave of the rally within Wave 5 up that started with the DMI turning positive on 24 May with the Dow trading at 21,012. Back then, the patterns suggested a top near the 22,000+ level. That level was reached last week. Now the same Patterns, Indicators, and Lists are suggesting significantly LOWER prices. As Dorothy would say, ‘We’re not in Kansas anymore”.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for
08-14-2017
DMI (DIA) | POS |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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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.
Category: Professor's Comments, Weekend Strategy Review