Weekend Strategy Review December 1, 2019
Posted by OMS at December 1st, 2019
he Dow fell 113 points on Friday, closing at 28.051. It was up 176 points for the week. The NASDAQ was down 40 points on Friday, but up 146 points for the week.
Friday’s decline appeared to be wave 4 down of final Wave 5 up. If this analysis is correct, the market should make one more final push higher early next week to complete final Wave 5 up of the Ending Diagonal Pattern that began in late December 2018. Ending Diagonals are topping patterns and once complete have a target of where they began. So, in this case, the Dow should begin a decline to the 21,713 level.
There were no changes to the market timing indicators after Friday’s session. The Dow, SPX, NASDAQ, and Russell 2K remain on Buy Signals.
Breadth: I continue to see major divergences between price and the breadth indicators. This type of negative divergence is usually associated with major topping action. On Friday. the Tide turned neutral as the Summation Index and the A-D Oscillator turned negative. In the rally since the A-D oscillator has been negative for 13 out of the 16 sessions. This is an EXTREMELY unusual event as a negative A-D oscillator means that more stocks on the NYSE are falling rather than rising. And now, after Friday’s decline, the A-D oscillator is back in negative territory again.
Fibonacci Cluster Window: This week, there are a lot of eyes on the Fibonacci Cluster Window that begins once trading resumes on Monday. This Fibonacci Window is important because the pattern on the Dow has a theoretical target between the 28,084 to 28,272 level. So, both the window, which is formed by the several concurring Fibonacci time dates AND the theoretical target are coming together at the same time. This is exciting stuff for a market technician. It’s sort of like the occurrence of a Blue Moon. It doesn’t happen often and when it occurs, it represents a prime place for a Major market turn.
Sentiment: The low Put/Call ratios I have been talking about for the past few weeks moderated somewhat during the week but continue to reflect way too much investor optimism. A high degree of Bullish sentiment (relatively low Put/Call ratios) is something you almost always see at or near a market top. In other words, in terms of P/C ratios, the stage is set for a major decline.
Seasonality: Last week, I said ‘Students should not underestimate the positive effect of the Thanksgiving Holiday/ end-of month seasonality’. So, even after giving back 113 points on Friday, the Dow was still up 176 points for the week. Going into next week, the market will no longer have this positive bias from seasonality to help support prices. The seasonality bias will be behind us, and in three of the past five years (2014, 2015, and 2018), the market has had some tough Decembers.
Years ending in ‘9’. I’m always skeptical when I see articles about things that I can’t explain. So, when I saw one that talked about how years ending In ‘9’ have resulted in major turns in the market, I took pause. Never-the-less, I found it interesting that in 9 out of the past 11 decades, the ninth year of the decade was a significant turning point (high) for the market. Again, I have no idea of why this has happened in the past or if there is any scientific or psychological basis for it, or if it can be used to project the future. I just found it interesting. BTW, in the two years when the ninth year of the decade was not the major high of the decade, it was an intermediate high. Hmmm?.
Sector Ratio: The Ratio remained at 18-6 Positive after Friday’s session. However, I did note that only five of the 18 Sectors have a RS rating of more than 2. Thirteen of the Strong Sectors have an RS rating of 1 or zero. In other words, the Sector Ratio is not as strong as it appears. But still, as long as the Ratio remains positive, the odds continue to favor higher prices as more sectors are moving higher than lower. The Strong Sector List was led by Healthcare, Retail, Service, PharmaBio, and Food Drugs. The Weak List was led by Energy, Utilities, Food, and Telecoms.
Bottom Line for Equities. The markets remain at a critical point in their patterns, showing negative divergences and sentiment readings that suggest they could begin to change direction in the days ahead
Gold (GLD) rose 0.85 cents on Friday to 137.81. Gold remains on a Neutral Signal and continues to trace out a complex Wave 4 triangle. The pattern continues to suggest lower prices with a target near the 134 level. If the triangle develops into a 3-3-5 pattern, the price of GLD could fall even lower. This would put gold prices near or under the 1420 level. Gold closed at 1470 on Friday. I’m still avoiding gold for now but watching closely now that equities appear to be approaching an important top.
The Dollar rose fractionally on Friday with UUP gaining 0.03 cents. UUP appears to be nearing completion of its Wave 2 rally. If this is the case, the next major move in the Dollar should be down. Wave 3 down in the Dollar could drop it to the 95.8 level or lower. This would be a significant decline in the Dollar and should help boost the Euro and gold prices.
Bonds (TMF) remain on a Neutral Signal. However, the a-b-c retracement rally in TMF appears to be nearing completion. If this is the case, the next major move in Bonds should be Wave 3 down. I’m just waiting for a signal change before buying TBT, the inverse Bond ETF, for the Model.
Crude Oil fell 4.6 percent on Friday, causing UCO to drop 1.58 to 16.88. The decline caused my timing indicator on Crude to turn Neutral. UCO still appears to be working its way through a major triangle consolidation pattern where it needs to break above the 19 level before it will see higher prices. I’m just watching and being patient.
There were NO CHANGES to the Model after Friday’s session. The Model continues to hold 1,500 shares of UCO and $101,342 in cash. The Model plans to use its cash to buy additional shares of inverse index ETFs once the timing signals on the equity indexes turn negative. The Model is up 27 percent after Friday’s session.
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,
Market Signals for
|DOW||POS||25 Oct 2019|
|NASDAQ||POS||24 Oct 2019|
|GOLD||NEU||29 Nov 2019|
|U.S. DOLLAR||POS||25 Nov 2019|
|BONDS||POS||20 Nov 2019|
|CRUDE OIL||NEU||29 Nov 2019|
As always, the Professor never makes recommendations. The information is provided on an educational basis so you can have informed discussions with your financial advisors and/or accountants about your individual investment decisions.
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.