Weekend Strategy Review July 25, 2015
Posted by OMS at July 25th, 2015
The Dow fell 163 points on Friday, closing at 17,568. It was down 518 points on the week. The NASDAQ was down 58 points on Friday and off 122 points for the week. It was a very bad week for stocks.
But you would never know it if you were watching FOX Business News. All they did on Friday was talk about Amazon (AMZN) which was having a wonderful day after announcing earnings that blew away Street estimates. The stock closed up 46 points.
Don’t get me wrong, I have nothing but good things to say about Amazon…as a retailer. You can’t beat Amazon’s prices and the free and quick delivery you get with Amazon Prime. It seems that as soon as Marcia orders something on line, it’s at our door. But as a stock, I’m not so sure about AMZN at these levels. It looks very overpriced.
Anyhow, that’s not the point I wanted to make today. What I want you to realize that for most of the week, even though the networks (including FOX) were touting stocks that were going up, for every stock that was going up, there were three going down. And even though FOX spent the entire day on Friday drooling over Amazon’s big move up, they never said anything about stocks like Biogen (BIIB) which dropped over 85 points? Or Capital One Financial (COF) which dropped over 10 percent on Friday. (Hmmm..a bank stock dropping over 10 percent in one day??? Now that should be BIG news). There were a lot more stocks like Biogen and COF on Friday than there were Amazons.
So you need to be careful now. When networks like FOX just want to paint a rosy picture for you, it’s not helpful…especially if things are about to turn ugly.
Now to be fair, I still don’t know this for sure. The Dow is still above the 17,465 level, and as long as that support level holds, there is still a possibility that the recent decline is just wave ‘b’ down of an a-b-c pattern for wave 2 up. If this pattern is occurring, the Dow still could rally back above 18,000.
This is one of the reasons I sold my shares of DXD late Friday. IF the Dow broke below 17,465, I would have held my shares. But it didn’t. And because the odds are only 50-50 now for a continuation of the decline, I didn’t like even money bets. After Friday’s decline, the A-D oscillator is oversold and the 2-period RSI Wilder is buried at 1.1. So IF I had to bet on what will happen on Monday, I would have to go with a pop.
On the other hand, the Dow had a DMI turn during the week, turning negative on Tuesday. The Coach (DIA) turned negative the following day. So when the DMI turned negative, I started running The Professor algorithm. Here’s what he said:
On Tuesday, the day of the DMI turn on the Dow, The Professor identified 25 stocks as shorts entering the trend mode. The following day…the day the Coach (DIA) turned negative, he highlighted an additional 35 stocks as shorts. On Thursday the number of shorts increased to 38, and on Friday it increased to 52!
Now, I don’t have as much data for the Professor algorithm at identifying market declines as I do for rallies. Most of you know that when The Professor algorithm highlights more than 50 stocks as longs, the market usually experiences a 700-800 point rally as a minimum. More than 100 longs usually leads to rallies in excess of 1200 Dow points.
But on the short side, my research is limited. All I can tell you is that when 28 or more shorts were highlighted, the period that followed was not a very good time to be in the market. The most recent decline of significance occurred last September when the Dow fell over 1,100 points from its high. At the start of that decline, the Professor highlighted 59 stocks as shorts on 9/22. This was followed by 27 more shorts on 9/23 and another 19 on 9/24.
So seeing 25 shorts last Tuesday (7/21), followed by 35, then 38 and 52 on Friday is definitely something to be concerned about. Those 52 shorts on Friday came very close to the level that started the 1,100 point decline last year. In other words, we need to be EXTREMELY careful now. Yeah, we could get a bounce from oversold conditions early in the week, but any bounce will have to fight all those stocks that are either in or about to enter the downside Trend Mode. It will be a very difficulty fight.
One thing you should remember is that even if the Dow is starting a wave 3 decline, it won’t be straight down. Friday’s decline took the Dow back under the 200-day moving average, which is always an indication of a possible wave 1. So IF the Dow does rally early next week, it will likely be a small wave 2 up of wave 3 down. The point is that IF we get a small rally, it increases the possibility of a wave 3 of 3 down occurring very soon. And any wave 3 of 3 is always fun to trade.
On another front, one of the more interesting things that happened on Friday was with the metals. Once again they got hammered early in the day, but closed up by days end. This caused GLD to close back above its lower Bollinger Band, generating a new Buy Signal.
So even though I sold my shares of DXD, I kept my ‘trial’ position in GDX. Right now I’m showing a small loss in GDX as I bought it at 14.10 and it closed at 14.08 on Friday. The original Buy Signal that was generated a few days ago is still in effect.
So here’s my strategy for next week: As long as The Tide stays negative (don’t you LOVE The Tide?) I will look to trade the south side on any bounce. With a negative Tide, I simply go to the Dean’s List and look for inverse index ETFs to Buy. BTW, since The Tide turned negative on 20 July, the Dow has lost 531 points. Follow The Tide! Always!!!
For gold: My strategy is a bit more complicated. This is because right now, even with 2 Buy Signals on the Board, gold stocks or ETFs have still not appeared on the Dean’s List. So I have to wait. All I can do now is hold my ‘trial’ position in GDX. But given that August in only a week away, I’m gonna be watching gold very closely now.
Have a great weekend.
That’s what I’m doing.
H
BTW, one of the reasons I was very interested in what happened with Biogen on Friday was because of what I talked about in my recent webinar “Something Old, Something New”. Remember, seasonality trades with the biotechs are always something we think about in early August. So because of this, I’m attaching a chart if BIIB so you can understand why it fell on Friday. The chart will also help explain why I will be watching the stock as we move into August.
Market Signals for 07-24-2015 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
SUM IND | NEG |
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.
Category: Professor's Comments, Weekend Strategy Review