Weekend Strategy Review July 8, 2018

Posted by OMS  at July 8th, 2018

On Friday, the BLS reported the U.S. economy added 213,000 jobs in June, a strong number.  It also said the number of Americans currently working reached 155,576,000, which is a new record.  However, the unemployment rate increased slightly to 4 percent.  The markets staged a strong rally on the news.

The Dow closed 100 points higher at 24,271 after being up over 160 points intraday.  Friday’s rally pushed the large cap index up 185 points for the week.  The tech heavy NASDAQ finished up 102 points on Friday and up 178 points for the week.

The problem I had with Friday’s rally in the Dow was that it didn’t finish on its highs.  Yeah, the initial move off the Jobs Report was impulsive, but once the market was able to digest the news and weigh it against the fact that over 400,000 jobs could be lost in a trade war with China, the Dow started to pull back after reaching the 24,560 level. With the real possibility of a trade war starting with China, Canada, Mexico and the EU, and its potential negative impact on jobs and the U.S. economy, I still need to see the Dow move beyond the 24,600 level before I’m ready to call the start of Major Wave 5 up.  

Looking at the charts the morning, I see the 2-period RSI on the Dow with an overbought reading of 84.4.  The VTI has turned up, but with a reading of only 32.3, it’s barely out of the negative Trend Zone.  The VTI needs to move above 50 for the indicator to have positive momentum.  So the VTI / RSI combination is telling me the market is overbought with No Trend in place.  These conditions usually lead to a pullback.  And a pullback is NOT something I would expect to see IF the Major Wave 5 rally was starting.

So, we wait.

Friday was also the third day in a row that Bonds (TLT) moved higher. The 2-period RSI on TLT finished with a reading of 91.2.  But looking at the VTI on TLT, it’s showing that Bonds are in the Trend Mode with a reading of 81.7. It’s strange to see Bonds in a solid Up Trend at the same time that equities are trying to move higher.  Money usually doesn’t move into both markets at the same time. Especially now with the Fed tightening….there isn’t that much free money available. So, Friday’s rally in both markets was a little strange.

Also strange was the fact that DXD, the inverse ETF for the Dow, reappeared on the Dean’s List.  I find it EXTREMELY hard to believe that a Major Wave 5 rally is starting with DXD on the List.  Maybe the Dean is trying to tell us something.

Anyhow, there’s a lot of news for the markets to digest this weekend, and with mixed indicators on the cockpit, I don’t see any point in risking a lot of my money …yet.  If the market starts to move lower early next week, I still believe there’s a good chance that it will re-test the 24,200 level.  And if this re-test fails, the large triangle pattern still allows for a move down to the 23,750 level.

On the other hand, IF the Dow starts to move higher next week, and moves beyond 24,600, it’s likely that Major Wave 5 up has started.  IF this happens, I’ll get long as my minimum upside target for Major Wave 5 up is above the 26,600 level, possibly as high as 28,000.  This is why I’m being patient and watching for the indicators to turn positive.  With a potential target 2,000-3,500 points above current levels, I’m not in any rush to place my bets.

There were no changes to the Sector Ratio on Friday.  It remained at 13-11 positive. The Strong Sector List is still being led by defensive sectors like Energy, FoodDrugs, Retail, Utilities, Consumer Products, and Healthcare.  The fact that defensive issues like Food and Utilities are still leading the Sector List is a major problem for me.  They shouldn’t be there if Major Wave 5 up is starting.  Utilities and Food don’t lead!  Computer, Technology, Cap Equipment, Financials, and Semiconductor usually lead, but right now only Computers and the Semis are on the Strong List, near the bottom.  Also, the RS Ratings on these two important sectors are still very low.  If the market pulls back early next week, I wouldn’t be surprised to see them move back onto the Weak List.  BTW, for me to buy into a Wave 5 rally, I really want to see sectors like Technology, Cap Equipment, Semis, Banks and Financials replace the defensive issues on the Strong List.  I just don’t see how the Dow can move to 26,600+ without them.    

I did notice that UDN replaced UUP on the Dean’s List.  This is a positive for Cap Equipment stocks like BA and CAT.  It’s also positive for gold and silver.  However, GLD fell on Friday as equities rallied.  My combination VTI-volume indicator for GLD and SLV remains on a Sell Signal.  So, while the appearance of UDN on the Dean’s List is a short-term positive sign for the markets and the metals, I still can’t buy gold or silver with a negative VTI-volume indictor.  I can’t!

That’s what I’m doing,

h

Market Signals for

07-09-2018

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