Weekend Strategy Review March 17, 2019

Posted by OMS  at March 17th, 2019

The markets rallied Friday on heavy volume.  The Dow finished with a gain of 138 points, closing at 25,849.  It was up 399 points for the week.  The NASDAQ was up 58 points on Friday and up 280 points for the week.

Friday’s rally caused my market timing indicator for the Dow to generate a Buy Signal, joining the SPX (SPY) and NASDAQ (QQQ) and RUT on Buy Signals.

On first look, it would appear that everything is positive, but this is not the case.  Even though the markets have produced a lot of points to the upside this week, I’m still seeing large negative divergences between price and breadth.  These negative divergences are usually signs that the market rally was NOT healthy.

There’s also a problem with the pattern.  Friday’s rally caused the Dow and several other indexes to stop at the Upper trend line of a several potential Bullish patterns.  This means that while the longer-term pattern has turned Bullish, it’s still possible that the markets could pull back substantially in the short term.  In other words, Friday’s rally could have been the completion of Wave ‘b’ up within Wave 2 down of the Bullish Scenario.  If this is the case, Wave ‘c’ down could still cause the Dow to fall to the 24,500 level or below and still be within the larger Bullish pattern.

The fact that the markets are at a critical resistance level and showing EXTREME negative divergences still has me concerned. Truth be told, I would very much rather see the market decline for the next few weeks than continue to rally. If the Dow continues to move higher, it will be doing so without a clear pattern.  I hate when this happens.  On the other hand, IF the Dow were to begin falling next week, and start moving below the 25,500 level, it would increase the probability that the decline is part of wave ‘c’ down’ within corrective Wave 2 down.  If this happens, it would put clarity back into the patterns. 

Bottom Line:  Even though my market timing signals for equities are all positive, I would be not surprised to see a signal change next week.

The Dean’s List remains positive while The Tide remains neutral. The Summation Index and the A-D oscillator are the two breadth indicators (both negative) keeping The Tide neutral.  So even though the Dow has rallied almost 400 points this week, it did so on a Negative A-D oscillator. Hmmm?  The A-D oscillator was negative all week. This is a very unusual event.

The Sector Ratio fell to 22-2 positive after Friday’s session.  The Strong List continues to be led by Semiconductors, Household Products, Computers, Technology, and Real Estate.  The two Weak Sector were FoodDrugs and Autos.

Gold and most mining stocks rose on Friday.  GLD finished 0.56 points higher at 122.97.  GLD moved back to a Buy Signal.  It’s still not clear whether the recent move up in gold is the beginning of Wave 3 up or Wave ‘b’ up within Wave 2 down.  This is the reason the Model does not have a full position in gold.

Crude Oil (UCO) was flat on Friday (-0.02 cents), closing at 20.55.  UCO remains on a Buy Signal.  With a pattern that suggests a possible move to the 200 just under 23, I’m just monitoring its progress.

Model Portfolio:  The Model remains 25 percent invested in Crude Oil (UCO), 12.5 percent invested in QLD (142 shares), an 2X long ETF for the NASDAQ-100, and holds 500 shares of UGL, a 2X leveraged ETF for gold.  The remainder of the theoretical $100,000 portfolio, $48,982, remains in cash.

So far, the newly created Model is showing a gain of $1,803.27, without commissions.  Since inception, the Model is showing an IRR of 1.76 percent while the broadly based SPX is up 0.94 percent.

The past two weeks, where the market action has caused several whip-lashes in our timing signals, has been a difficult period to start any Model Portfolio, especially one that uses leveraged ETFs.  A period like this is a great stress test for any model. Also, models based on leveraged ETFs tend to do best when the market is trending. But they usually get hit hard when the market is experiencing a choppy period, as in a Wave 2. So, the fact that ours is still showing an $1,800+ gain is impressive. continue to monitor the performance of the Model.

The Model Portfolio is being shown for educational purposed only.  The Buy/Sell actions in the Model Portfolio are made based on technical indicators that can and do change frequently and should NOT be considered as recommendations for trading an actual portfolio.  Any gain or loss in the Model Portfolio should not be used to predict future performance of the Model.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

03-18-2019

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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.