Weekend Strategy Review February 16, 2020

Posted by OMS  at February 16th, 2020

The markets opened lower on Friday but rallied into the close. The Dow was down over 140 points early, but only closed with a loss of 25 points at 29,398. It was up 296 points for the week. The NASDAQ was up 19 points on Friday and up 211 points for the week.

Friday’s action was part of the small corrective pullback I was expecting.  The only problem I had with the pullback was that because it was a little more than I expected, I’m not sure if was a wave 4 ( which I was expecting) or still part of wave 2 of final wave 5 up. The reason I say this is because the pullback could also e part of an a-b-c corrective pattern that began on 2 February.  It really shouldn’t matter too much in either case as once the correction completes, the next move should result in higher prices.  The only difference should be in the length of the next rally. If Friday’s pullback was part of a corrective wave 2, the next wave up should be an impulsive wave 3.  This wave should carry into late February with the Dow finally topping in early March. If Friday’s action was part of a wave 4, the Dow should top a bit sooner, maybe toward the end of February.

In either case, it appears the Dow (and the other markets) are tracing out the final waves of a Major top, that should complete somewhere between the 29,600 – 30,000 level.  BTW, by falling to 29,283, the alternative scenario (wave 4) where the Dow tops near 29,600 is still in play.

Supporting a rally from current levels is the fact that there was another small change in the A-D oscillator on Friday.  The 8-point difference between Thursday’s and Friday’s reading means we need to be on the lookout for a Big Move withing two days after the markets open for trading on Tuesday.  The markets will be closed Monday for the President’s Day Holiday.

At this point, the Model is still 100 percent in cash.  However, because Friday’s action could have been part of a corrective wave 2, the odds have increased that a wave 3 rally could be close at hand.  Because of this, the Model will be looking to establish a small ‘trial’ position in DDM if a low risk entry point can be established.  If I can’t get a good entry point, I’ll pass on the trade.  I still believe that the market is within weeks of approaching a Major top.

The Market Timing Signals on the Dow, NASDAQ, SPX and Russell 2K remain positive.  However, the volume position of my VTI-volume indicator is showing EXTREME negative divergence, especially on the Dow and other large cap indexes. If the market doesn’t rally early next week, these volume indicators will turn negative and then all the market would need to begin a down slide is a change in momentum.  In other words, what I’m telling you is that now is NOT the time to be getting aggressive with your portfolio.

The Sector Ratio came in at 14-10 positive after Friday’s session.  With the Ratio being positive, but still near the Neutral level, I can’t get too excited about putting a lot of money at risk.

I’m still watching for a change in signal on Crude Oil.  It’s getting close.  The one thing I’m concerned about with crude is the fact that DUG, the inverse ETF for Energy is at the top of the Dean’s List.  At this point, Energy is NOT one of the favored sectors on Wall Street.  Also, the long-term pattern for Crude is a triangle, so until the triangle completes…. maybe sometime next year, prices are not going to run away from current levels.  Crude is a trade!  And in this market, taking fliers on trades can be very risky.  If the economy turns south because of a spread in the corona virus, the already low prices on crude can go significantly lower.

Be patient.  Enjoy the long weekend.  If I see a good entry point for the Dow (DDM), I’ll post it early Tuesday.

That’s what I’m doing,

h

Market Signals for

02-18-2020

DISCLAIMER

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.