Weekend Strategy Review December 8, 2019
Posted by OMS at December 8th, 2019
The markets rallied hard on Friday in response to a better than expected Jobs Report. Analysts expected 185 new jobs would be created; the BLS number was 255 K. The report created a lot of excitement on Wall Street causing TV commentators to bubble over with excitement. However, when I looked at the report closely, a lot of the new jobs were government ‘estimates’ which is a ‘fudge factor’ applied because the month was 5 weeks vs. 4 weeks long and included Black Friday Week, the best hiring week of the year for the Retail Sector. While I liked the low unemployment number of 3.5 percent, I didn’t feel the rest of the report justified the degree of excitement generated on the Street. I expected a move to 28,000. That’s what we got.
The Dow finished with a gain of 337 points, closing at 28,015. It was down 36 point for the week. The NASDAQ was up 86 points on Friday but was still down 9 points for the week.
From a technical perspective, Friday’s rally appeared to be wave ‘c’ of wave 2 up. Earlier in the week I discussed how the Dow would likely develop a corrective a-b-c rally for wave 2 up and that wave ‘c’ of 2 up could take prices back to the 28,000 level. This is what played out on Friday ….the Dow completed wave ‘c’ of the corrective pattern. I do not believe it was the start of a new rally phase. So, IF I’m correct, the market should now begin to decline early next week with an initial target near or below the 26,650 level. The 26,600 level is my current target for wave 3 down. Then once wave 3 down completes, there should be a small corrective wave 4 rally, followed by significantly lower prices. Eventually, the Dow should work its way back down to the 21,700 level which is where the year long Ending Diagonal Pattern started back in December 2018.
Another reason I thought the Dow would rally back to the 28,000 level is because of the Sector Ratio. If you recall, the Ratio stayed relatively strong at 18-6 positive even while the Dow was declining over 800 points. Because of this sector strength I was reluctant to get aggressive to the short side with the Model Portfolio and only established a few ‘trial’ inverse positions. So, if the market begins to head down early next week, like I fully expect, I’ll be watching the Sector Ratio very closely. If it turns negative, I’ll begin to get aggressive with my shorts.
The market timing indicators for the Dow, NASDAQ, SPX and Russell 2K turned Positive on Friday. However, because these signals are coming near the completion of a corrective wave within a Major Pattern, I would be cautious to act on the new signal. I want to see what happens early next week before doing anything with the Model Portfolio.
The Tide and the Dean’s List are both positive.
The Sector Ratio stayed at 18-6 Positive after Friday’s session. Hmmm? One would think there would be a big increase in the Ratio after a 337-point gain on the Dow. It didn’t happen and is another reason why I’m cautious.The Strong Sector List was led by Healthcare, PharmaBio, Retail, Service, and Computers. The Weak Sector List was led by Media, Utilities, Telecoms, Energy and Insurance.
As I mentioned in Thursday’s comments, I don’t have access to my desktop computer now, so I can’t give you an update on the Model. That will have to wait until I get back home next Tuesday. BTW, I should be getting home near mid-night, so I probably won’t post updated Lists and Comments until later Tuesday morning, 10 December. This all assumes that my flight out of Strasbourg on Monday is not impacted by the transportation workers strike that is currently taking place here in France.
BTW, I should mention how much Marcia and I are enjoying the Strasbourg area. The best word I can use to describe the city is ‘magical’. They call it the ‘Capitol of Christmas’. After being here for 4 days, I can only tell you that the Christmas displays are beyond anything I have ever seen. Everything, and I mean everything, is decorated in the old-world traditions. The decorations would make the devil smile.
Anyhow, given where we are in the current patterns, I really want to see what happens early next week before doing anything else. The projections I made for the market to top near current levels have come true. And now I’m just waiting to see if the major indexes will begin to head down. If they do, the change in Bullish sentiment will impact the price of the Dollar, gold and Bonds. This should present us with several new trading opportunities as we move into the New Year.
Have a great weekend.
That’s what I’m doing,
Market Signals for
|DOW||POS||06 Dec 2019|
|NASDAQ||POS||06 Dec 2019|
|GOLD||NEU||06 Dec 2019|
|U.S. DOLLAR||NEG||02 Dec 2019|
|BONDS||NEU||02 Dec 2019|
|CRUDE OIL||POS||04 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.
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