Weekend Strategy Review June 1, 2014

Posted by OMS  at June 1st, 2014

The Dow rose 18 points on Friday, closing at 16,717.  It was up 111 points for the week.  The technology heavy NASDAQ was down 5 points on Friday, but up 57 points for the week.

It appears that wave 3 of final wave ‘C’ up is underway. However because the P-volume on the Dow (DIA) has still not turned positive, the current rally must be viewed with concern.

In this week’s WSR, I am attaching a chart of the DJIA that includes volume data from the NYSE.   As you can readily see from the chart, the index is currently in a strong up trend, with the CCI, Chandes T-Score, and William’s %R buried in positive trend territory.  But the thing that stands out like a sore thumb is the lagging and negatively diverging P-volume.  As the price pushes higher, it’s doing so with less and less volume.  This is an indication that the current rally is quickly running out of gas.  This is not the time to be putting new money to work.  Rather, it’s time to be thinking about doing some money management.

Can the market continue to push higher?  Sure.  There are still a lot of stocks like Striker (SYK) that have strong P-volumes working for them.  I have included a chart of SYK in this WSR so you can see the differences in P-volume.  If your stock or ETF has a positive P-volume that looks like SYK, it’s one thing.  If it looks more like the Dow, it’s quite another.  This is a time when you might want to do some selective pruning within your portfolio.  If your stock is running out of gas, it’s not too early to start doing some money management. 

Remember, the Dow is no longer trading at 16,336 like it was on 19 March when The Professor issued his last Buy Signal.  Now the Dow is almost 400 points higher.  And if you recall, that last ‘Buy Signal’ was NOT a very strong signal.  I had to combine the 44 longs on 18 March with the 44 on 19 March to get it.  So we knew going in that the current rally would likely NOT be a very strong rally.  It took a lot of time (2 ½ months) and effort to get to the levels we’re at now.

And now that the Dow is at 16,717, the odds for additional increases are no longer in our favor.  Sure the Dow could continue to chop higher, but the pattern suggests the current rally leg could end near 16,800-16,900, or 100-200 points from current levels.  And once complete, there is a danger that a wave 4 retracement could take the Dow back down to the 16,100 –16,200 level.  Right now, with the decreasing P-volume, this is a real possibility.

So this weekend, it might be a good idea to start looking at the P-volume on all of your stocks.  Does the P-volume look like the Dow, or more like the P-volume on  SYK.  If it looks more like the former, it might be a good time to start doing some selective pruning.

Gold (GLD) remains in a strong down trend. I have also included a chart of GLD in this week’s WSR so you can see the negative P-volume and negative trend indicators. As long as these indicators remain negative, I will continue to hold my short position in gold.

Have a great weekend.

That’s what I’m doing,

h

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