Weekend Strategy Review March 25, 2018

Posted by OMS  at March 25th, 2018

The Dow fell another 425 points on Friday, closing at 23,533.  It was down 1,425 points for the week.  The NASDAQ finished down 174 points on Friday and down 489 points for the week.

Friday’s decline on the Dow stopped right at its 200-day moving average.  I talked about how this would likely happen on Friday if what we saw on Thursday was the start of impulse Wave 3 down.  I also said, “If prices continue to move down and the Dow breaks below the 200, it will confirm that the Bull Market that started in March 2009 is over and that a new Bear Market is starting”.  But as of Friday’s, close, we still don’t know this yet because prices have not broken below the 200. 

On the other hand, the VTI portion of my combination VTI-volume indictor is now reading -22.7, which means that the Dow is now in the Down Trend Mode.  Since the indicator turned negative on 21 March, the Dow has lost 1,149 points. Following this indicator matters, so seeing it enter the Down Trend Mode is a major concern.

The other major concern I have this weekend it that the same VTI-volume indicator on the Weekly Charts for the Dow and NASDAQ has turned negative.  This is also a major new development as this indicator on the Weekly Dow has been positive since September 2016 (that’s right, 2016!) and positive on the Weekly NASDAQ since 22 September 2017.  So now both Weekly indicators are negative.  This is not something you want to see if you are Bullish for the longer term.

For the very short-term, the markets are EXTREMELY oversold.  The 2-period RSI on the Dow is showing a reading of 2.27, so they could bounce.  Notice I said ‘could’, because the VTI is now in the Down Trend Mode.  And when the markets are trending, the dominant indicator is no longer the 2-period RSI.  You can put that indicator back in the tool box.  It’s no longer useful in a trending market.  Once the market starts to trend down, it can continue to trend down even though the 2-period RSI is oversold.   

Same for the A-D oscillator. On Friday, the A-D oscillator finished with an oversold reading of -196.85.  Normally, I would be looking for the market to bounce with a reading like this.  But when the market is in the Down Trend Mode, the A-D oscillator can remain oversold for days as the market continues to decline.  This means that there is NO telling where the bottom is.  The normally reliable oversold / overbought indicators are totally useless once the market starts to trend.

Bottom Line:  This is the time when you need to protect yourself.  BTW, this is also why once the Up Trend ended, we started to Scalp Trade.  That’s what we do when there is no trend in place.  And the reason we do this is because once the Up Trend ends, there is a danger that the market could start to change direction and enter a new Down Trend. That’s what happened.  So, on days when the Dow was dropping 200 points overnight, scalpers were safely out of the market.  They protected their money, and then took advantage of the trading set-ups when the short-term indicators provided good entry points.

That’s what I was doing on Friday with INTC and MU.  I traded both stocks to the UPSIDE using the short-term bars and made a nice profit…even though the Dow was falling over 400 points.  BTW, on Friday, Micron announced earnings and revenues that beat most estimates and provided better-than-expected guidance for next quarter. However, despite this positive news, traders dropped the stock 4.71 points.  Micron is one of the cheapest large cap stocks I know.  Its P/E is an extremely low 8.47.  That’s one of the reasons I continue to look for opportunities to buy and trade MU. 

The Sector Ratio fell to 22-2 negative on Friday.  The only two strong sectors were the Semis and Household Products.  The Weak Sectors were led by Real Estate, Autos, Food Drug, Retail, and Energy.  All these weak sectors got hit hard.  Like I continue to say, avoid them like the plaque!  BTW…IF and it’s a Big IF at this point, the Dow does hold support at the 200-day moving average early this week, look for stocks in the Strong Sectors to rally hard. Remember, a stock like INTC (from the strong semiconductor sector) is still in an Uptrend and is now oversold on its 2-period RSI.  And even though the overall market is now in a down trend, money coming out of the weak stocks will have to go somewhere.  It will not all go into Bonds and gold.  So, Rifle Trades on stocks in the strong sectors are still possible.  Just don’t fall in love.

Gold had a nice day on Friday.  GLD, which generated a VTI-volume Buy Signal on 21 March, rose 1.63 on Friday.  GDX, which is also on a Buy Signal, rose 0.62 cents to 22.16.  Gold and the miners could be starting Major Wave 3 up.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

03-26-2018

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