Weekend Strategy Review December 24, 2016
Posted by OMS at December 25th, 2016
The Dow fell 23 points, closing at 19,919. Volume was low again, coming in at 76 percent of its 10-day average. There were 89 new highs and 20 new lows.
At one point yesterday, when the Dow was down about 45 points, the VTI turned negative. I was getting ready to send an email alerting students to the possibility of a VTI turn, when a late rally turned the indicator back to positive. Doesn’t matter. Students should realize that almost any down day now will turn the VTI negative.
Remember, this is the indicator that called the market turn a full day before the market started to rally after the election. The Dow was trading at 18,260 back then. Now the Dow is trading at 19,918 and the indicator is still positive. The VTI also called the start of the rally on 12 February with the Dow trading at 15,974. Just a little over 2 months later, the Dow reached a high of 18,167.
The VTI is the indicator I will be using to trigger for my new ETF Sector Rotation Strategy. When it turns negative, I will be shorting or buying inverse ETFs in the weakest sectors of the S&P500.
Currently, there are 19 strong sectors and only 5 weak sectors on my List. I would expect this relationship between the number of strong and weak sectors to flip-flop once the market starts to head down. The fact that there are still so many strong sectors on the list tells me that it’s still a bit early to start shorting.
However, it also should be noted that the VTI on many of the strong sectors has started to head down. Yesterday I mentioned that the VTI on the Transportation Sector has started to head down. And yesterday, the trannies lost more ground. The VTI on the autos, a sector that participated in the rally, is now negative. Not a good sign for auto stocks.
The Banks, Semis, and Financials remain the strongest sectors and are keeping the Dow propped up. The weakest sectors are Healthcare, Household Products, PharmaBio, Services, and Utilities. The VTI and Money Flow indicators on the first three sectors is now negative. Be careful if you own stocks in these sectors.
The reason I mention this is because IF the VTI on the Dow starts to turn negative in the days ahead, these first three sectors could maintain their position at the top of the Weak List. This would mean that I would have to start my Sector Rotation Strategy by shorting ETFs in these sectors.
I haven’t talked about much about gold lately, mostly because the VTI on UUP, the ETF for the Dollar remains positive and the VTI on GLD remains negative. UUP also remains on the Dean’s List. However, I’m starting to see significant negative divergence in the Money Flow indicators on UUP. If I see a VTI turn on either UUP or GLD, I’ll let you know.
Also, a few days ago, I mentioned the fact that the VTI on EEV, the inverse ETF I use to short Emerging Markets, had turned positive. Yesterday EEV popped 0.40 cents. The VTI and Money Flow indicators remain positive. The VTI on EEV is still only at 66.5, so there is a possibility that it could be entering the Trend Mode (above 70). My minimum target for the ETF is 18.6, but if a trend develops while the ETF is making its ‘Rope Jump’, the trend could push it a few points higher.
Bottom Line: It appears that a significant top is approaching. The climb to the top is being led by fewer and fewer sectors. The VTI on several formally strong sectors has turned negative (Transports, Autos, Computers, Technology, and Energy). Once the Money Flow indicators in all of these sectors turn negative, the overall market will start to decline. It’s still possible that we could see 20,000 on the Dow in the days ahead, but with more and more sectors weakening, it’s becoming problematic.
Again, I wish my students a wonderful, joyful Christmas and a happy, healthy and prosperous New Year.
Enjoy your family and spoil your grand kids.
That’s what I’m doing,
h
Market Signals for
12-27-2016
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
SUM IND | POS |
VTI | POS-T |
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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