Weekend Strategy Review December 28, 2014

Posted by OMS  at December 28th, 2014

I don’t have a lot new to report this weekend. All of my indicators continue to show significant negative divergences and when this starts to occur, usually the best thing to do is nothing.

I know that this is not what you want to hear when you subscribe to a newsletter, but it’s the truth. There are times when it’s best to be on the sidelines and just wait until the odds start to improve. Right now the odds for the Dow trading another 100 points higher are not worth taking. Probably less than 1:1. I don’t trade unless I see odds that are 2.5 to 1 or better. And even though longer term, the odds are much more favorable for a significant decline, I would rather wait until The Tide turns, so I don’t have to trade against that indicator. So I’m on the sidelines. I’m not worried that I’m gonna miss anything.

Here’s why:

On Friday, the DOW Diamonds (DIA) closed on the low of the day, 180.19, after reaching a new intraday record high of 180.71.  This new high was NOT confirmed by any of the volume indicators I track, including the P-volume, On-Balance Volume, or Volume Accumulation Percentage (VaPct).  As a matter of fact, the VaPct and the Coach, my primary Money Flow indicator, actually turned negative on a day when the DIA was making new highs.  All of these non-confirmations are very Bearish omens going forward.

If these volume-money flow divergences do not improve in the days ahead, (very unlikely), the market could be in for some very rough sledding once the current year-end Bullish seasonality bias ends.

The Dean’s List, Tide, and most of the cockpit indicators are still positive.  However, because the Coach has turned negative, it must be taken as a warning.  So with a pattern that appears to be topping and mixed indicators that are showing signs of severe negative divergence, I’m on the sidelines.

I believe that it is way too late to be buying stocks and too early to start shorting.

Gold had a nice day on Friday, gaining 22 points to 1195.  This caused several gold stocks and ETFs to appear on the Dean’s List.  From a longer-term perspective, it appears that gold is nearing completion of a three year corrective wave 4.   If this is the case, then the next wave up, Major wave 5, should take gold to new highs.  BTW, if you look a monthly chart of GOLD (attached) you can see the longer term Hockey Stick pattern. It’s pretty impressive!

At this point, it’s hard for me to get too excited about gold, mostly because the decline in crude oil prices are having a blanketing effect on most commodities.  However, gold is often viewed as a safe heaven, and as such can be driven by other factors like world crisis or war.

And because declining crude oil prices are having a negative impact on the economies of trouble makers like Russia, Iran, and Venezuela,  I wouldn’t be surprised to see a few Russians and others start looking at gold as a store of wealth. Remember, in 2008 when the Russian Ruble lost 70 percent of its value compared to the U.S. Dollar as a result of falling oil prices, GLD went from a low of 66 to a high of 185 during the next 3 years.

Right now, of all of the gold stocks currently on the Dean’s List, Randgold Resources (GOLD) has the best pattern.  The P-volume has been diverging positively and turned positive on Friday.  Currently trading near 66, the 13 point stick suggest the next move will be above the 72 level. If this happens, it would be a ‘Rope Jump’, indicating a possible wave 1 up.  The DMI and MACD on the Daily chart are very close to turning positive.   Because of this, I will likely start to look at GOLD and several other gold stocks on the Dean’s List on the shorter term bars.  I’m still not in any rush to buy gold shares now, because even if they do make a ‘Rope Jump’, there will still will be plenty of time to accumulate gold shares.  However, with everything that is happening in the world, 2015 might be the year for gold.  And IF it is, we need to start paying attention to the miners.

Have a great weekend.

That’s what I’m doing,

h

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