Weekend Strategy Review December 17, 2017

Posted by OMS  at December 17th, 2017

The markets finished the week on a strong side…again.  The Dow rose 143 points on Friday, closing at 24,652.  It was the second consecutive Friday where the Dow rallied over 100 points.  The NASDAQ and SPX gained 80 and 24 points on Friday, finishing the week up 96 and 24 points, respectively.  So, most of the gains for the week took place on Friday.

Friday was also the day the GOP released their final tax plan, which showed the compromises made on the different versions passed by the House and Senate.  The House plans to vote on the revised bill on Tuesday.

OK, where are we now?

It still appears that wave 5 up of final Wave 5 up is underway.  Friday’s strong rally appeared to be part sub-wave 3 of wave 5 up.  If this wave count is correct, the markets should continue to rally into Christmas as sub-waves 3, 4, and 5 continue to develop. Once these sub-waves complete, it’s likely the Major Bull Market that started in March 2009 will be over.

Friday’s rally caused the Summation Indicator, Up-Down Oscillator, and A-D Oscillator to turn positive.  So now, 3 of the 4 indicators that make up The Tide are positive, making it neutral.  The lone negative holdout is the Hi-Lo indicator.  It’s interesting that the Hi-Lo indicator, along with the Summation Index, continue to show severe negative divergence as the Dow rallies.  Looking back to 2007, these same two indicators started to diverge negatively from price in May 2007, two and a half months before the Dow peaked at the 14,121 level.  So even though the Dow continues to rally, the internals continue to warn that a top of major significance is approaching.

BTW, the divergence between the two breadth indicators mentioned above and price started in mid-October 2017, so IF the market follows the historic 2007 example, they should start to roll over once the Santa rally completes.

Also, right now my VTI-volume indicator on the Dow is still very strong, so I would expect the current rally to continue.  The Dean’s List and the Sector Ratio are also very strong, and this too suggests a continuation of the Santa rally.  Students should look at the current Dean’s List and note the presence of the positive index ETFs, the many sector ETFs and country ETFs.  This is what a very strong Dean’s List looks like.  You might want to print a copy of this List and post it near your computer. That way, when the market starts to weaken, and the List starts to weaken, you’ll have something to compare it to.

Friday’s Sector Report showed the Sector Ratio at 21-3 positive.  Last week, the Sector Ratio was also at 21-3 positive, so the ratio was unchanged for the week.  Students should note how the markets continued to rally with the strong Sector Ratio.  The strong Sector Ratio is one of the reasons I believe the Santa rally will continue. 

The Strong Sector List continues to be led by Food Drugs, Transportation, Cap Equipment, Financials and Banks.  My composite chart for the top 5 sectors shows that all five had a very good week. The Weak List was led by the Semis, Telecoms, and Utilities.  My composite chart for the Semis and PharmaBio (on last week’s Weak List) showed that both sectors had a relatively flat week. The same chart for the Utes showed they had a very bad week.  So once again, we see the benefit of being in the strongest sectors.  The strong sectors rose, leading the market higher, while the weak sectors were flat to down. 

Gold (GLD) rose 0.25 cents on Friday, closing at 119.18.  The rally in GLD for the past 3 days appears to be corrective, retracing some of the decline from the 123 level.  My VTI-volume indicator on GLD remains on a Sell Signal, on both the Daily and Weekly charts. If GLD, GDX, and mining stocks rally early next week, I’ll be looking to short them from slightly higher levels.  Watch the 2-period RSI for overbought conditions.

Remember, GDX is now in a down trend where the 50 is BELOW the 200.  So anytime the 2-period RSI becomes overbought, it’s a candidate to short with a Rifle Trade.  

In my PT Class last Thursday night, I reminded the new students of the importance of determining the Trend on a stock or ETF before looking at anything else.  Sometimes we forget to do this when we look at a chart.  Our eye always seems to go right to the indictors.  NO!  Determine the Trend first and then look at the indicators.  If the stock is in an Up Trend and the PT indicators are positive, look to add shares with Rifle Trades every time the stock becomes oversold.  Do the opposite with stocks in a downtrend.  So now that many mining stocks and ETFs, like GDX appear to be starting Down Trends (50 below the 200), we look to short them when the 2-period RSI becomes overbought.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

12-18-2017

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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.