Weekend Strategy Review January 6, 2019
Posted by OMS at January 6th, 2019
The markets rallied on Friday with the Dow finishing 747 points higher at 23,433. The rally was fueled by a positive Jobs Report that said 312K new jobs were created in December. Positive comments on inflation and interest rates by Fed Chairman Jay Powell after the report added fuel to the rally.
Going into yesterday’s session, I thought the Dow would rally from oversold conditions for about 300+ points. But the combination of new buying and short covering pushed the rally higher than I expected. However, it did not change the overall pattern.
Thursday’s 660 point decline on the Dow was impulsive, so it appeared that sub-wave 2 up was complete and Wave 3 down was back underway. But because Friday’s rally exceeded Thursday’s decline, the rally was likely a continuance of sub-wave 2 up within Wave 3 down. The fact that Friday’s rally appeared to have an a-b-c shape to it adds further weight to this analysis.
Larger out-sized rallies on the day of a Jobs Report are usually followed by short-term weakness. In 6 of the last 7 occasions where the SPX rallied for over 2 percent on a Jobs Report Friday, the SPX was trading between 3.8 to 6.8 percent LOWER a week later. The one exception was in 2008 when the SPX was up 0.4 percent a week later.
So, IF I’m right about the Friday’s wave count being part of sub-wave 2 up, history and the overall pattern suggests that Wave 3 down should resume its downward course next week.
BTW, history also suggests that whenever the second session in January is down, (Thursday’s 660 point decline was the second session in January), it usually leads to a down month.
Friday’s rally turned the VTI-volume indicator on the Dow and NASDAQ neutral. The rally also turned The Tide and the Dean’s List positive. However, before I can trade index ETFs to the positive side, I need confirmation from the market timing indicators. This hasn’t happened yet.
The Sector Ratio increased to 1-23 negative after Friday’s session. Consumer Products moved to the Strong List with a RS rating on zero. If the market starts to decline early next week, I would expect Consumer Products to move back on the Weak List. I can’t get too excited about any 700+ point rally that only adds one sector to the Strong List. The Sector Ratio continues to tell me this is an EXTREMELY weak market and the most likely path remains down.
Valero (VLO) popped 2.81 points on Friday to 77.01 as crude oil moved higher. Crude Oil is still on a Neutral Signal, so my VLO trades are just scalp trades. I’m only watching and trading Valero now because the favorable February – May period for trading energy is approaching. I won’t be holding any energy related stocks until I get a Buy Signal from my VTI-volume market timing indicator for Crude Oil. This hasn’t happened yet. Be patient.
Have a great weekend.
That’s what I’m doing,
Market Signals for
|DOW||NEU||04 Jan 2019|
|NASDAQ||NEU||04 Jan 2019|
|GOLD||POS||27 Dec 2018|
|U.S. DOLLAR||NEG||27 Dec 2018|
|BONDS||POS||19 Nov 2018|
|CRUDE OIL||NEU||03 Jan 2019|
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