Weekend Strategy Review February 25, 2018

Posted by OMS  at February 25th, 2018

The markets bolted higher on Friday in what appeared to be the start of impulsive wave 3 up.  The Dow finished the day up a whopping 348 points, closing at 25,310.  It was up 90 points for the week. The NASDAQ and SPX also had a big day on Friday, rising 127 and 43 points, respectively.  The key word in this paragraph is ‘impulsive’.

Remember, for the past few weeks, I have been talking about two possible scenarios for the markets:  One Bullish and one Bearish.  However both scenarios had the Dow rising to higher levels before falling.

The Bearish scenario had the Dow rising to about the 26,000 level in a Major Wave 2 retracement before falling.  This week, we saw the Dow fall to a low of 24,794 in what appeared to be sub-wave 2 of a five wave sequence the should take the Dow to the 26,000 level before all five waves are complete. Yesterday’s impulsive rally wave was likely the start of wave 3 up in that sequence.  So, it would appear that we’re on track for a move to the 26,000 level…at least.

Under the Bullish scenario, yesterday’s rally was also likely the start of an impulsive wave in a significantly larger pattern that would see the Dow rise to the 26,000+ level, but then pull back for a wave 4 correction before eventually moving above 28,000, possibly higher.

So, in both scenarios, the 26,000 level is key.  But because the Dow declined in five distinct waves from its 26 January high of 26,617, we MUST respect those five waves down.  We simply CAN NOT ignore them.  Anytime I see five waves down after a Three Highs to a Top (THT) Pattern, I absolutely MUST respect them.  So before I do anything else, I MUST assume the worst possible case, which is that the rally off the 9 February low of 23,360 was part of retracement Wave 2.  In other words, under this scenario, the market has already topped with Major Wave 1 down completing on 9 February, and Wave 2 up in progress, probably completing near the 26,000 level. After that, Major Wave 3 down would develop as the ‘Crash Wave’. This is the reason students MUST be cautious now.  The crash wave could only be weeks away.

On Thursday, my combination VTI-volume indicator generated a Buy Signal.  The signal occurred after the pattern for the Dow suggested sub-wave 2 was nearing completion.  So, we were expecting an impulsive move up, and we got it.  The small change signal from the A-D oscillator helped boost prices higher, with many sectors participating.  Make no mistake about it…Friday’s impulsive move up was strong.  It was enough to turn The Tide positive.  The A-D oscillator finished with a reading of 104.2, which means that most stocks on the NYSE are now in short-term up trends.

Friday’s rally also produced a major change to the Sector Ratio.  The Ratio rose to 23-1 positive.  The only Weak Sector was the Autos.  The Strong List was led by Computers (of course!)…we knew they would lead any rally.  Computers have been leading the Strong Sector List for weeks!  Computer stocks, like INTC and MSFT, were up 1.93 and 2.33 points respectively.  Other strong sectors were Semiconductors, Healthcare, Consumer Products, Banks, and Material.  Hmmm?  Do you recognize any of these sectors?  They too have been on the Strong List for the past few weeks.  So once again, the Strong Sector List told you where to be.  BTW, I also noted the Energy moved off the Weak List and has move to a mid-pack position on the Strong List.  Hmmm?  The calendar says March is getting close.  Don’t be surprised to see Energy on the strong List next week.

My trial positions in Exon-Mobil (XOM) and Chevron(CVX) had a nice day on Friday, rising 1.67 and 2.7 points respectively.  My VTI-volume indicator on both stocks is STILL negative, but just barely.  BTW, this same indicator on DIG is also still negative, so don’t get too excited about energy yet, even though it had a nice day on Friday.  Why do I say this?  Hmmm?  Well, it’s because the VTI-volume indicator on DIG turned negative on 24 January with the ETF at 45.45.  In the weeks that followed, DIG fell to a low of 30.89.  So yeah, I have a few ‘trial’ shares of energy stocks, mostly because its late February.  But for me to get serious about Energy, I MUST see my VTI-volume indicator turn positive.  I also need to see DUG drop off the Dean’s List.

Gold and mining stocks were relatively flat on Friday.  GDX rose 0.24 cents to 21.97.  I’m still on a neutral signal for the ETF.

With the markets looking like they want to go higher, continue to focus on stocks and ETFs in the strongest sectors. If my VTI-volume indicator on Energy turns positive, I’ll let you know.  Also, keep your eye on gold.  It still appears that Major Wave 2 down is nearing completion and Major Wave 3 up is about to start. 

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

02-26-2018

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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.