Weekend Strategy Review August 28, 2016
Posted by OMS at August 28th, 2016
The Dow fell 53 points on Friday, closing at 18,395. It was down 157 points for the week. The NASDAQ finished up 7 points on Friday and down 19 points for the week.
Fed chair Janet Yellen told the central bankers at Jackson Hole that the case for increasing interest rates has “strengthened” but she gave markets little guidance on timing, saying they would be “gradual” and happen “over time”. Her comments sparked a 113-point rally in the Dow that was quickly dowsed when fellow policymaker and vice chair Stanley Fischer talked about a strengthening economy and jobs market in an interview following Ms. Yellen’s speech.
Fisher’s suggested that a rise in interest rates could come sooner than what the Fed Chair indicated. However, with an election coming in November, I think the soonest we will see a rate rise will be December. But with the U.S. growth rate being revised down to 1.1 percent (from 1.2 percent) on Friday, I don’t see the ‘strengthening economy’ that Fisher talked about. Maybe I’m missing something?
Anyhow, Friday’s up-down action didn’t do much to change the indicators. The Hi-Lo indicator turned positive causing The Tide to turn neutral again. But the DMI on the NASDAQ remains positive, so the cockpit indicators continue to provide mixed signals.
I’m also concerned about something else, and that’s The Professor. As most of you know by now, I use this trend algorithm to confirm a change in DMI. It helps me avoid whip-saws.
So last Wednesday, when the DMI on the Dow (DIA) turned negative, I ran The Professor. On Wednesday he had 10 longs and only 7 shorts. Hmmm? This was nowhere near the 30+ number of shorts I was looking for to confirm the negative DMI turn. On Thursday, after a 33-point drop in the Dow, he had 22 longs and only 5 shorts. Again Hmmm? This is one of the reasons I was looking for Ms. Yellen’s comments to rally the market on Friday. The Professor was NOT confirming the DMI turn on the Dow.
So where does this leave us after Friday’s up-down action? Well, for starters The Professor is still showing a positive bias, with 38 longs and only 4 shorts. Until BOTH DMIs turn one way or the other, he’s not confirming anything.
It’s the same for Emeritus with his Honor Roll picks. The fact that he’s not highlighting any stocks for the Honor Roll is keeping me on the sidelines.
And it’s the same for the Dean with two positive and two inverse index ETFs on the List.
Bottom Line: With mixed indicators and NO Trend in place, there’s no point in putting money at risk now. Several weeks ago, I talked about the importance of trading with a trend. I posted a few charts that showed how I used the VTI to identify these trends. That’s because trends are where you make money; non-trending markets just chop you to pieces and make you feel frustrated. Don’t get frustrated. There’s a time to trade and a time to remain on the sidelines. Right now the VTI on the Dow is showing NO Trend, confirming what The Professor, Emeritus, and the Dean are saying.
So relax and be patient. The market will start to trend again, and once it does, our indicators will tell us when.
Remember, trading is an odds game. And right now the odds are about 50-50. If I’m going to risk my money, I need to see better odds.
Have a great weekend.
That’s what I’m doing,
Market Signals for
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