Weekend Strategy Review December 25, 2017

Posted by OMS  at December 25th, 2017

The markets finished the week down slightly on light, pre-Christmas trading.  The Dow fell 28 points, closing at 24,652.  It was up 102 points for the week.  The NASDAQ and SPX were down 5 and 1 point on Friday, finishing the week up 23 and 7 points, respectively.

Congress passed the tax reform bill and the President signed it into law on Friday.  I’m sure it made a lot of the Big Corporations happy.  Most small businesses and average Americans won’t see a lot of benefit, as they will be offset by higher healthcare premiums.

OK, where are we now?

It still appears that wave 5 up of final Wave 5 up is underway.  Friday’s light trading didn’t do anything to change the overall pattern.  It still appears that the Dow is in the final stage of a Wave 5 rally that should take it slightly past the 25,000 level. 

For now, most of the cockpit indicators remain positive. However, once this current rally completes, the indicators should start to turn negative telling us that the Bull Market that started in March 2009 is over.

Friday’s decline caused the Hi-Lo oscillator to turn negative, so once again The Tide is neutral.  The four breadth indicators that make up The Tide have been vacillating during the week between positive and negative. But the divergence between these indicators and price continues.  So, even though the Dow continues to rally, the internals continue to warn that a top of major significance is approaching.  BTW, the divergence I’m noting on the Dow is even more apparent on the technology laden NASDAQ.  The Hi-Lo indicator on that market is significantly off the high it made in mid-October, while the index is over 370 points higher.  It tells me that fewer and fewer stocks are participating in the rally, a classic sign that a top of major significance is approaching.

Like I said last week, the negative divergence between the breadth indicators and price is a concern, because just prior to the crash in 2007, we saw a similar divergence develop.  So, IF the market follows the historic 2007 example, they should start to roll over once the Santa rally completes.

Friday’s Sector Ratio rose slightly to 20-4 positive, with the Telecom Sector moving back to the bottom of the Strong List.  The Strong List was led by Food Drugs, Household Products, Transportation, Cap Goods, and Media. The Weak List was led by Utilities, Insurance, PharmaBio and Real Estate.

BTW, yesterday I received a nice email from Mike N. talking about the Sector List.  He noted how I mentioned that oil had a high positive DTS score.  He said, “Remembering back to your first sector presentation and the impressive results you presented when that condition occurred has kept my eye on OIL (DIG).  It is working out rather well.”

Yes, it is Mike, but have you noticed what has happened to the Food Drug, Healthcare, Transportation, and Media Sectors recently?  And how about the Semiconductors, Banks, and Financials before that, when the current rally started back in early September?  The Strong List had them all!  Like I keep saying, stay in stocks and ETFs in the strong sectors and avoid (like the plague) stocks and ETFs in the Weak Sectors. 

For example, about a week and a half ago, I started talking about how the PharmaBio Sector was weakening.  I noticed that Gilead Sciences (GILD) was one of the weaker stocks in the sector.  So, I shorted GILD between 75 and 76. On Friday, GILD closed at 72.72.  During this same period, the Dow rose about 250 points!   So, the strong stocks get stronger, while the weak ones get weaker.  Hmmm?  Pay attention to the Sector Lists!

Gold (GLD) rose 0.63 cents on Friday, closing at 120.94.  In doing so, it performed a ‘Rope Jump’, indicating the move was Wave 1 up.  So now, GLD should start trade along its moving averages to develop a Wave 2 ‘Blade’.  If this happens, I’ll start looking for oversold conditions to buy a few shares.  But right now, the ETF is overbought with no trend in place.  Watch for a pullback.

Have a great weekend.

That’s what I’m doing,

h

P.S. I’m in the process of moving from the house I’ve lived in for 14 years to a house 3 blocks away with a beautiful water view. The inside of the new house needs a lot of work, including new floors and a major kitchen re-do.  Obviously, the move and the re-do will keep me busy for the next few months, but once complete, it should be worth it.  My major challenge for the next week or so, besides all the other stuff a move requires, will be to get internet access in the new house and move my computers.  Hopefully, there won’t be a disruption of service, but you never know.  I will have internet access on my laptops with a T-Mobile Hot Spot, so the Lists will be updated.  But my bones will be aching as I write, so please bear with me.

The markets will be closed Monday, 25 December for Christmas. My actual move is scheduled for 26-27 December, so I probably won’t post Comments until after I get into the new house. But I’ll be keeping an eye on the markets and if I see something, I’ll let you know.

Merry Christmas!

Market Signals for

12-26-2017

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