Weekend Strategy Review January 22, 2017

Posted by OMS  at January 22nd, 2017

Stocks rose as expected on Friday responding to oversold conditions on the 2-period RSI with no trend showing on the VTI.  The Dow finished up 94 points, closing at 19,827.  It was down 58 points for the week.  The NASDAQ also finished up 15 points on Friday, but was down 19 points for the week.

Friday’s rally turned the VTI on the Dow back to positive.  However, the indicator remains in No Trend territory (65.0), but now has a neutral RSI to go along with it.  In other words, there is no bias either up or down, for the VTI-RSI combination.  So, I need to look elsewhere for clues as to the next direction of the market.

The Tide remains negative and the Dean’s List is neutral.  I never like to trade against a negative Tide.  However, the Money Flow indicators on the cockpit remain positive.  So, with money still not leaving the market, any trades to the downside will likely have a low percentage success rate.

The Professor algorithm is telling me the same thing.  Right now, he’s sleeping.  Recall that three days ago, when the DMI on the Dow turned negative, he did NOT confirm the DMI turn.  The Dow was trading at 19,827 three days ago; yesterday it finished at the exact same level…19,827.  The Professor is good at what he does.

Anyhow, with mixed signals almost everywhere I look, I’m not inclined to put my money at risk.  In past Updates, I tried to show students the benefits of trading when the market is in a Trend.  The most recent example of this was just after the Election, when the VTI entered the Trend Mode and then stayed there for over two months.  During this period, the Dow gained over 1,200 Dow points.  But since 28 December, when the VTI on the turned down the index has gone nowhere.  The Dow was trading at 19,834 on 28 December.  Yesterday it closed at 19,827.  By turning down, the VTI was telling us the trend was likely over and a new non-trending period was about to begin. 

And this is where we find ourselves this weekend.  Without a trend in place, and the cockpit showing mixed indicators, I can’t even initiate my new Sector Rotation Strategy.  I designed this new Strategy to take advantage of both trending and non-trending markets by keeping me in the strongest sectors.  But right now, with mixed volume and Money Flow indictors, I can’t even do that.

All I can tell you is to be patient.  At some point, the indicators will show that a strong bias is developing in the market or in certain sectors.  The algorithms should start to pick this bias up and tell us which sectors to trade.  But right now, there is no bias.  And without a strong bias, putting money at risk to trade the equity market is pointless.

Gold is another matter.  Gold (GLD) is in an Uptrend.  The VTI on GLD continues to rise as GLD trades between its 50 and 200 day moving averages.  On Friday, GLD rose 0.28 cents to 115.05.  It continues to develop its ‘Blade’.  Once this ‘Blade’ is complete, GLD should have the strength to ‘Jump the Ropes’ or move above the 200-day moving average.  Once this happens, GLD will start to pull the 50 above the 200, enabling the ETF to move even higher. 

During this turning process, it’s perfectly normal for GLD to pull back and re-test the 50.  We saw this happen on Thursday, when the ETF got as low as 113.93.  The pullback proved to be another buying opportunity for gold and mining stocks.  In the days ahead, as GLD continues to trade between the 50 and the 200 developing its ‘Blade’, there will likely be other buying opportunities.  If the VTI on GLD remains in Up Trend territory, I will continue to look for opportunities to add to my gold positions whenever the 2-period RSI gives say so.

Building a position in gold.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

01-23-2017

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