Weekend Strategy Review January 27, 2019

Posted by OMS  at January 27th, 2019

Late Friday evening, the president signed a bill that funds the government through 15 February.   So, the shutdown is over, and the government is back in business, at least temporarily. If lawmakers can’t work out a deal that fully funds the government and provides for the wall, President Trump has said he won’t sign it, so the government will be closed again in three weeks.  Hmmm?  I don’t know about you, but I’m getting tired of all this chaos in Washington.

On the other hand, it doesn’t seem to be impacting the markets.  The markets rallied on Friday as expected, appearing to complete final wave ‘c’ up of Wave 2 up.  If this analysis is correct, Wave 3 of Major Wave 3 down should start soon.

The Dow, which rallied over 300 points early, finished the day up 184 points at 24,737.  It was surprised when I saw the large cap index only up 31 points for the week. It felt like it should have been more. The NASDAQ was up 91 points on Friday, and only 7 points for the week.  Again, I was surprised when I saw the number.  With all the volatility we had during the week in technology, the net gain was almost a flat line. 

In last week’s WSR, I talked about how the markets were at a cross road.  They were being blocked by the 200-day moving average on the upside and supported by the 50-day moving average on the down side.  This remains the case this weekend. 

Friday’s early rally tested the upside moving averages, but the rally failed.  This produced another ‘Evening Star’ Candlestick Pattern on the Daily chart of the Dow.  So, it’s possible the top is in.  But we won’t have confirmation of any top until my key market timing indicators turn negative.  Right now, they’re still very positive.

Same for The Tide and the Dean’s List. The only thing I’m seeing now from the indicators that suggests a top might be in is the momentum is slowing.  However, this could be a false sign because it might just be that the market is resting in preparation for another advance.  The overall pattern does NOT favor that outcome, but if the markets don’t begin to roll over soon, it will have to be considered.

The 35-period CCI on the hourly chart of the Dow (DIA) continues to remain positive.  Until this indicator turns south, its likely that prices will continue to push higher.  However, after Friday’s rally, I can now count five completed waves within Wave ‘c’ up, which would indicate that the rally was part of a 3-3-5 flat pattern for Wave 2 up.  So, continue to watch the CCI early next week.  Again, if it turns negative, I will begin to buy inverse index ETFs as they start to appear on the Dean’s List.  The IF the timing signals for the Dow and NADDAQ turn negative, I will become more aggressive with my purchases.

BTW, right now, if I had to chose between the Dow, SPX, NADSAQ, and RUT as a short, I’d probably pick the NASDAQ and RUT.  Technology and the small cap stocks still appear a lot weaker than their large cap sisters.  That’s probably because the small caps are being impacted more by the Fed’s continued selling program and push for higher interest rates which continues to tighten the money supply.  So, IF QID and TWM start to appear on the Dean’s List, they will get my attention.

Another thing that caught my attention this morning was the significant change in the Sector Ratio.  Going into Friday, the Ratio was 17-7 positive.  So, after a 184 point rally, you would think the Ratio would be even more positive. It wasn’t.  Hmmm?  The Ratio fell to 12-12 Neutral.  The other surprising thing had to do with the make-up of the Strong and Weak Lists.  So, while Semiconductors still topped the Strong List, the sector was followed by Utilities, Material, Healthcare, and PharmaBio.  The Utes, Material, and Healthcare sectors are NOT sectors that usually become strong at the beginning of a new expansive economic cycle.  No, these are sectors that usually come into favor during the early stages of an economic contraction.  Also, with the Materials Sector now at the number three position on the Strong List, we need to start paying attention to gold.  So, even though the market rallied on Friday, the Sector List is telling us that there might be something else going on.

Gold had a strong day on Friday.  GLD rose 1.77 to 122.82 as the ETF broke out of its small triangle and pushed its price to the Upper Bollinger Band.  Friday’s rally caused the VTI-volume indicator on gold to move into a Buy Signal.   Gold (the metal) remains in an Up Trend, however the gold miners, as evidenced by GDX, continues to show its 50 as being below the 200.  Until this relationship changes, I’d still be cautious with the miners.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

01-28-2019

FAQ

Only getting the Professor’s Weekend Review? Try his daily update Cum Laude service for 2 weeks only $9.99 LEARN MORE

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.