Weekend Strategy Review December 22, 2019
Posted by OMS at December 22nd, 2019
The markets spiked higher on Friday but finished well off their highs. The Dow ended with a gain of 78 points, closing at 28,455. It was up 320 points for the week. The NASDAQ was up 38 points on Friday and up 190 points for the week.
Friday’s early rise could have been the end of Wave ‘D’ up. From a wave count and pattern perspective, Friday’s rally exceeded my target of 28,300 but remains within the two percent allowable limit. Friday’s rally also rose above the upper trend line of the pattern but by days end was trading just above the trend line. If the Dow pulls back early next week and moves below the upper trend line now near 28,350, it will likely be the first step in the next decline. However, students should understand that it will take a break of the 27,325 level to confirm that the next Major decline (the next Bear Market) is underway. Once 27,325 is broken, the market will likely work its way back down to the 21,700 level which is where the year-long Ending Diagonal Pattern started back in December 2018.
The Dow, SPY, NASDAQ and Russell 2K remain on Buy Signals. However, because five complete waves in the Major Ending Diagonal Pattern are now complete, the signals could change at any time.
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.
The Dean’s List and Tide remain Positive.
The Sector Ratio increased to 24-0 Positive after Friday’s session. Students should continue to watch for signs that the Ratio is weakening before becoming aggressive to the shot side. The Strongest Sectors were Healthcare, Energy, Retail, Semiconductors, and PharmaBio. There were NO weak sectors.
Because the Sector Ratio remains strong, I remain reluctant to get aggressive on the short side with the Model Portfolio and only have a few ‘trial’ inverse positions working. If the market begins to head down next week, and the market timing signals turn negative, I’ll become aggressive to the short side.
Gold (GLD) rose 0.14 cents on Friday to 139.52. Gold remains on a weak Buy Signal with tight Bands. Narrow Bands usually mean that a Big Move is coming, so gold could be starting Wave 5 up. On the other hand, if gold does not begin to move above last week’s high of 1487 soon, it could start another wave down within Wave 4. At this point, I still don’t want to get aggressive with my gold purchases. Right now, the Model is holding a small ‘trial’ position in GDX. However, my timing signal for the gold miners moved to a Neutral signal on Friday as GDX fell 0.35 cents to 27.13. GDX needs to be watched carefully now as the miners could begin to decline along with equities even as gold (the metal) rises. On Monday, the Model will be placing a tight stop on its ‘trial’ shares of GDX because of the potential for a decline.
Same for silver. Silver broke above its recent high on Friday but remains in a conflicted pattern. Silver could continue to push higher, but for any sustained move, it needs to be supported by advancing gold prices. Otherwise, silver could fall to the 16.30 level…..beyond that 15.50. The metals are NOT a good bet at this point…too many conflicting waves.
Bonds (TMF) were flat on Friday and remain on a Sell Signal. MY VTI-trend indicator for Bonds is just a half point shy of entering the Down Trend Mode, so if Bonds decline on Monday, they could be entering the next wave down within Wave 3 down. If this happens, the Model will look to buy a few shares of TBT, the inverse ETF for Bonds. BTW, one of the reasons I continue to wait for additional confirmation before buying TBT is because of the historic relationship between Bonds and equities. In the past, Bonds tend to perform well in a declining equity market as they are perceived as a safe haven. Right now, the indicators on Bonds are not looking too good, but Friday’s late decline in equities caused a significant improvement in the short-term indicators. This could mean that equity prices have reached a significant top and Bond prices are about to turn around. I want to see what happens with Bonds early next week before doing anything.
UCO (crude oil ETF) fell 0.38 cents on Friday, closing at 19.96. The decline caused the stop order on the Model’s remaining 750 shares of UCO to be executed. When this happened, the Model immediately bought 1,000 shares of SCO, the inverse ETF for Crude Oil at 12.29. SCO finished the day at 12.45. Crude Oil has now moved to a Neutral Signal. If the signal turns positive next week, the Model will add to its ‘trial’ position as the next wave down should drop the price of crude about 10 points, down to the about the 50ish level.
After Friday’s switch of positions in Crude Oil, the Model now holds 1,000 shares of SCO, 1,000 shares of DXD, 300 shares of SQQQ, 500 shares of GDX with a cash balance of $74,167. The Model is currently up 29.7 percent since it started on 26 February 2019.
BTW, the Model gained slightly over $6,000 on its most recent purchase/sale of UCO (the Crude Oil ETF) which was the ‘Best Bet’ on the Board. Right now, there are NO Best Bets on the Board. The next ‘Best Bet’ is shaping up as the short or inverse trade in equities….but not yet. Be patient and wait for the signal!!! I don’t have any problem establishing small ‘trial’ positions in inverses ETF at current levels. That’s what the Model and I have been doing now with my personal portfolio. I have also been buying the 31 March DIA Put with a strike price of 280 at prices near or below the 6.25 level as a river boat gambler’s bet. I really like this bet. It’s not for everyone, but if you want to take a shot….
I continue to believe that positions established in inverse index ETFs from current or higher levels on the Dow will prove to be big winners in the months ahead once Wave ‘D’ up completes. My initial target for the next Wave down remains at the 26,600 level. Beyond that, prices should move significantly lower after all five waves are complete, probably back down to the December 2018 low of 21,713.
That’s what I’m doing.
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.
Market Signals for
|DOW||POS||11 Dec 2019|
|NASDAQ||POS||12 Dec 2019|
|GOLD||POS||13 Dec 2019|
|U.S. DOLLAR||NEG||09 Dec 2019|
|BONDS||NEG||12 Dec 2019|
|CRUDE OIL||NEU||20 Dec 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.