Weekend Strategy Review March 26, 2017

Posted by OMS  at March 26th, 2017

The Dow fell 60 points on Friday, closing at 20,597.  It was down 318 points for the week.  The NASDAQ finished up 11 points on Friday, but down 72 points for the week. 

The cockpit indicators are still giving bearish readings for the third week in a row.  I thought the markets might stage a short-term rally if the House passed a Health care bill, but after Friday’s debacle, I’d be surprised to see any rally now. With Health Care and Tax Reform being delayed, and the courts challenging President Trumps immigration policy at every turn, investors are starting to lose confidence in America’s leaders and the Bullish sentiment that was so prevalent after the election is starting to ebb.  With the patterns suggesting a top is in, I must prepare for a serious decline.

Because of this, I want to talk about two things this weekend:  The first is to revisit the chart of the Dow I presented last week.  The second is to show students that what is happening on Wall Street is not unique to America.  It’s happening all around the world.  Equity markets are setting up for significantly lower prices in the next 2-3 years.

Last week I showed a chart of the Dow with two Money Flow indicators, one Red and one Yellow.  This week, both Money Flow indicators are Red.  The thing students should note is that both Money Flow indicators have now turned negative after a period of consolidation, where the Bollinger Bands have narrowed.  In Class and in my book, I talk about how narrow bands usually mean a Big Move is coming.  The Big Move is always in the direction of the Money Flow indicators.

So, with negative Money Flow indicators after a narrowing of the Bollinger Bands, I would expect the Dow to start a stair-step decline early next week.  The pattern on the Dow continues to suggest a move down to the 20,400+ level, then a small pop for a mini-wave 2, before minor wave 3 down tests the 31 January low of 19,785.

The second thing I’m concerned about is the fact that this bearish trading action is happening on equity markets all over the world.  I have included charts of the Canadian and Australian ETFs, EWC and EWA so you can see what’s happening to their Money Flow indicators.  Canada’s TSX closed near 15,450 on Friday.  It’s longer term chart suggests it could trade down the 8,000 level or below in the next 2-2.5 years. 

The chart for EWA (Australia) suggests it topped recently at the 22.2 level.  The Ending Diagonal Pattern on EWA suggests it could drop from current levels, near 22 to 15.5. 

Same for the London FTSE.  Now trading near 7,336, the FTSE could get cut in half!   The German DAX closed near 12,000 on Friday.  It could see 4,500 before its decline is over.

Asia is no different.  India’s Nifty 50 closed slightly over 9,100 on Friday.  Its chart suggests 4,000 in about two years. 

I think you get the picture.

Because of what I’m seeing in these global charts, I am no longer Bullish about the equity markets.  Students should start to prepare for some serious declines. 

These declines could start early next week as there was a small change in the A-D oscillator on Friday.  Small changes in the A-D oscillator usually lead to a Big Move within 1-2 days. 

Friday’s Sector Report showed continued weakening in the sectors.  The report had 18 strong sectors and 6 weak.  The Semiconductors, Banks, Leisure and Transports continue to lead, with Energy, Retail and Service lagging. 

A few weeks ago, I mentioned that I was looking to short a few shares of GameStop.  I also talked about a Bearish spread position I was initialing by selling the 26 March 31 Calls.  Yesterday, that short paid off handsomely after GME’s horrible earnings report.  The stock dropped 3.22 points to 20.7.  I’m still holding the short Calls, hoping they will expire worthless next week so I can keep all the premium.

I’m still extremely Bearish on the Retail sector.  Retail has moved up to the #2 position on the Weak Sector List.  I expect the sector to be one of the hardest hit in the coming decline.

I don’t have a particular retail ETF that looks especially attractive as a short. But a short of PMR should do well as the Retail Sector continues to collapse.  After my successful short of GME, I want to focus on shorting a few more individual Mall or Strip Mall Stocks.  One of the stocks I’m looking at is G-III Apparel Group (GIII).  GIII is best known for operating stores like Donna Karan, Wilsons Leather and G.H. Bass & Co.  My wife Marcia hasn’t bought anything in a Mall Store for months, maybe years.  Everything she buys now is on-line.  All her friends are doing the same thing.  On-line buying means shoppers, like Marcia, are looking for specific, not impulse, purchases.  This lack of impulse buying will continue to hurt the retailers. 

The Bands on the Weekly chart of GlII are now being pushed to the downside. The VTI is below 70 (Down Trend) on the Daily, Weekly, and Monthly charts.  Sometimes you have to get on the horse and ride it to see how low it can go.

When the market rallied intraday on Friday, I bought a few more shares of TWM, the inverse ETF for the Russell 2K. 

So now I’m short the Russell and long a bunch of gold.  I’m also holding a few Naked Calls that I sold to collect premium while I was waiting for the market to roll over.  But selling option premium is not how I want to play this market for the next 2+-years.  I want to take longer-term positions in inverse index ETF or be short individual stocks or Sector ETFs.  This is why I’ll be taking a closer look at PMR and GII this week for entry points.  I’ll also be watching for EWG to drop off the Dean’s List.  If Germany starts to tank, you can kiss the rest of the European ETFs good-by.  With a potential decline of 60% showing on the chart of the DAX, I want to be short a few shares of EWG.

Tip: Make a note of all the Country ETFs currently on the Dean’s List. Then check to see if any of these country ETFs drop off the List next week. If they do, check their charts to see what the indicators are saying. Pay particular attention to EWG. I believe the over inflated European markets are going to decline a lot more than any of those in the U.S.  

That’s what I’m doing,

h

Market Signals for

03-27-2017

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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.