Weekend Strategy Review June 10, 2018

Posted by OMS  at June 10th, 2018

The markets closed the week with another nice rally.  After a slow start on Friday, which appeared to be a continuation of sub-wave 2, the markets managed to rally into the close.  The rally was enough to put my VTI-volume indicator on the Dow into the Trend Mode.  So now, the VTI-volume indicators on all the major indexes are in the Trend Mode.  The Dow is now up over 500 points since my combination VTI-volume indicator turned positive.  I continue to buy and HOLD stocks and index ETFs.

The Dow finished up 75 points on Friday, closing at 25,316.  It was up 681 points for the week.  The NASDAQ was up 10 points on Friday, and up 91 points for the week.

There was another small change in the A-D oscillator on Friday, so we need to be on the lookout for a BIG Move early next week.  With the G-7 meeting in Canada today and the President meeting with the president of North Korean after that, there’s plenty of things on the table that could trigger a significant directional move.  If either meeting produces a positive result, the markets could be off to the races on Monday.  With all indicators now in the Up-Trend Mode, the odds for a Big Move to the upside are high.

My target for this rally is still near the 26,600 +level, but a final ‘through over’ wave could take the Dow as high as 28,000.  Based on what I’m seeing now, the rally should last for another few months, possibly into late summer.  After that, things start to become problematic.

The reason is the Fed.  Currently, the Fed is selling assets (unwinding) at the rate of $30 billion per month.   In July, Fed selling will increase to $40 billion per month, and then to $50 per month in October.  All this Fed selling will make less money available to the banking system, which will have a negative effect on stock prices later this year.  Count on it!  You can’t take $50 Billion dollars per month out of the banking system and not negatively impact stock prices.

Also, while the Fed is selling assets, the Treasury is flooding the bond market with new supply.   Last month, the Treasury issued $89 billion in new bonds. That’s up $39 billion from last May when Treasury sold $50 billion in new bonds.  June could see even more flooding.  The Treasury plans to issue $44 billion in its mid-month auctions. That compares with $28 billion last May.

All this Fed and Treasury selling takes available money from the equity markets.  So, make sure you factor this in as part of your longer-term strategy. As long as the indicators and the Sector Ratio remain positive, I wouldn’t be concerned.  But IF the indicators start to turn negative…..

Remember, the current rally wave appears to be Wave 5 of a five-wave sequence that started just after the November 2016 election.  This wave is also the fifth wave of a Major five wave sequence that started in March 2009.  So, any change in the indicators to the negative side MUST be respected.  When they turn negative this time, they will likely signal the start of the next Bear Market.

The Sector Ratio remained at 19-5 positive after yesterday’s session.  The Strong Sector List continues to be led Healthcare, Consumer Products, Retail, Energy, Computers, and Semiconductors.  The Weakest Sectors are Household Products, Food, Service, Telecoms, and Media.  With the major indexes in the Trend Mode, I continue to look for opportunities to Buy and HOLD stocks and ETFs in the strongest sectors.  As long as the Sector Ratio maintains its positive bias, Buying and HOLDING stocks continues to be my primary strategy.

Gold and the miners were flat again yesterday.  GLD finished up 0.15 cents at 123.01. During the week, I mentioned that I couldn’t get too excited about gold as long as UUP, the ETF for the Dollar, was on the Dean’s List.  This changed on Friday, as UDN, the inverse ETF for the Dollar, made its first appearance on the List at the bottom.  My combination VTI-volume indicator on GLD remains on a neutral signal.  But now that UDN is back on the Dean’s List, the environment for gold is positive. This week, look for the VTI-volume on GLD to turn positive.  It’s very close.  If the VTI-volume indicator turns positive, gold (the metal) should rally toward the 1,600+ level.  A positive signal in GLD will also likely start a rally in silver.  My current target for SLV is near the 23-24 level.

That’s what I’m doing,

h

Market Signals for

06-09-2018

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