Weekend Strategy Review February 22, 2015

Posted by OMS  at February 22nd, 2015

The Dow staged a late afternoon rally yesterday on news that Greece and its creditors reached an agreement. The Dow had actually been down over 100 points in the morning session, but then rallied over 260 points to close up 150 points at 18,140.  The strong intraday rally was the Big Move predicted by the small change in the A-D oscillator.

Basically all the Greek deal did was to kick the can down the road.  I found it interesting that the new government accepted just about all of the austerity measures that were being imposed by the European bankers. These austerity measures were the reason that the Greek people voted the old government out of office in the first place.  So things really didn’t change.  Four months from now Greece will still need large amounts of money to keep it from defaulting.

If you think about what happened in Greece, it really wasn’t a surprise.  Despite what the Greek people wanted, the new government had to accept the loan extension.  Politicians do this.  They lie!   Because without the loan, they wouldn’t have money to run the government!  They couldn’t pay their people the retirement pensions and provide necessary health care.  It’s very similar to what’s happening here in the U.S.  Both countries are broke, only we have the ability to print money. So we continue to spend on Social Security, Medicare, and the Military, even though it creates a deficit of over $100Billion a month.  The Greeks can’t do this. So they have to borrow money from the Euro bankers.  At some point, the bankers are going to say ‘No mas’.  You can’t play kick the can forever in Greece. And you can’t do it in the U.S either. At some point, there will be a price to be paid.

Anyhow, the news about the Greek deal made traders happy which caused them to move money out of Bonds and into equities.  It didn’t change much in the TBT-TMF relationship.  My negative ‘Stick in the Sand’ for Bonds, TBT, is still on the Dean’s List.  It’s still not a favorable environment to be trading Bonds.  And the money that moved into equities just helped fuel the current rally.

The Dow remains in the Trend Mode (CCI>100), headed toward 18,300+.  The Dean’s List, Tide and PT indicators are all positive.  All I’m doing now is riding the horse.

I’m still watching the dollar as UUP remains on the Dean’s List at the very bottom.  Again, I believe that the dollar is very near the top of its pattern now.  If UUP drops off the List and is replaced by UDN, the inverse dollar ETF, it could mean that the rally in the dollar is over.  This would be a significant event for gold bugs.  It would also mean that the nine-month rally in EUO, the inverse Euro ETF, is likely over.

If you have been trading EUO, you should note that the P-volume has been bleeding off for the past few weeks and is now negative.  The Bollinger Bands are also starting to narrow.  Narrow bands usually lead to a Big Move.   So IF the other PT indicators, (MACD and DMI) turn negative, and EUO and USD drop off the Dean’s List, it will be my signal that the party in the dollar and the inverse Euro is over.  It will be time to start looking at UDN.

Again, the reason I’m mentioning this today is because I know that many of my students like to buy and hold ETFs for the longer term, especially in an IRA account.  This is where I like to use ETFs to take advantage of a major trend change.

BTW, If UDN does start to appear on the Dean’s List, I’d rather buy it than something like ULE (the long Euro ETF).   I just don’t like the idea about buying the Euro now.

Energy shares did not participate in Friday’s rally.   Boeing and the Financials mostly drove the Dow’s rally.  I mention this because the 2-period RSI Wilder on stocks like HAL and SLB is back in oversold territory with Green PT indicators.  Hmmm?  The last time we saw this happen with HAL and SLB was back on 11 February.  Both stocks rallied for several points during the next 3-days.

I’m still watching gold, but now that most gold stocks and ETFs are no longer on the List, I’m not paying them that much attention.  GDX and GLD continue to form nice ‘Blades’, but the indicators are RED.  However IF UDN, the inverse dollar ETF replaces UUP on the Dean’s List AND I start to see a few gold ETFs re-appear on the List….that’s where I will become very interested in gold.  Not now.

On Friday, Dave M. requested that Greenbrier Companies (GBX) be added to the Member’s Watch List. Greenbriar makes a lot of the new double-stack intermodal railcars; tank cars; auto-max railcar, multi-max auto rack, and flat cars for automotive transportation. I happened to be at a RR crossing last weekend when a train of these new double-stacked railcars was passing. It was massive! Talk about an economical way to move product.

The company has an impressive ROE of over 30%, improving shareholder equity and a forward P/E of 9+. I have no problem adding a stock like GBX to the data base. Thanks Dave.

Big Picture Strategy:  With a possible top approaching, I’m being very selective with my new purchases.  Right now, I’m still looking to add to my energy positions.  And I will be watching (closely) to see if UUP can stay on the Dean’s List.  UUP is a game changer.  If it drops off the List, it will impact many sectors of the market, like gold and companies with a lot of international business.  Pay attention!

Have a great weekend.

That’s what I’m doing,

h

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