Weekend Strategy Review March 3, 2019
Posted by OMS at March 3rd, 2019
The markets staged a nice rally on Friday, after pulling back for three consecutive days. In Friday’s Comments, I said that the three days of pullback appeared to be a small wave 4 within a five wave rise. If this analysis is correct, the markets should rally into the 8-11 March to complete Wave 1 up. The 8-11 March time period is something to watch now as several Fibonacci turn dates are coming together to form a cluster. These clusters represent critical time zones where the probability for a market turn increases significantly.
From a pattern perspective, there are several scenarios that could come into play IF the market does begin to turn. At this point, I can’t even begin to outline them all as I need to see how a potential pullback back occurs. Under the Bullish Scenario, the market would correct from current levels in a simple a-b-c move that would drop the Dow to the 24,500-24,800 level to complete Wave 2 down. This correction would take several months to complete before Wave 3 up resumes its rally that eventually takes the Dow to the 30,000 level. Students should understand that without seeing an actual pullback, any projected rally to 30,000 is pure speculation.
However, students should also realize that in the current rally, the Dow has still NOT broken above the October 2018 highs. So IF these highs are not broken, it’s also possible that the current rally is only part of a much larger pattern for Wave ‘B’ up. Under this Bearish Scenario, the Dow would make a series of corrective moves during the next few months, staying between 24,500 and 26,300 before Wave ‘B’ up completes. The corrective moves would form a large triangle on the chart. Then once the Wave ‘B’ triangle completes, Wave ‘C’ down would drop the Dow below the December 2018 low of 21,712. In other words, IF the Dow remains below the October 2018 highs, this Bearish Scenario is still in play.
This is the reason I have been saying the markets are at a critical juncture now and can go either way. I offer these scenarios so students can understand what could potentially happen. However, in the Professor’s Methodology, we DO NOT trade on what could potentiality happen. We trade on indicators that tell us what’s actually happening. So, pay attention to the indicators!
There were no changes to my market timing indicators for equities. The Dow, NASDAQ, SPX, and RUT remain on Buy Signals.
Friday’s rally caused The Tide to turn positive again. The Dean’s List remains positive. Students should not forget that two of the breadth indicators of The Tide turned negative during the week, which is a sign the current rally is tiring. So, IF the breadth indicators start to turn negative again next week, it might be the real deal.
The Sector Ratio remained at 23-1 positive after Friday’s session. The Strong List continues to be led by Household Products, Semiconductors, Technology, Service, and CapGoods. The only Weak Sector was FoodDrug.
Gold continued its pullback on Friday, with GLD dropping 2.11 to 121.88. Gold appears to be starting its Wave 2 pullback. Because this, I will now have to wait for my market timing indicator on gold to turn positive again before buying gold for the Model Portfolio.
Crude Oil (UCO) fell 0.95 cents on Friday, closing at 18.83. Crude Oil remains on a Buy Signal and as it develops a small wave 2 ‘Blade’ along its 50-day moving average. As I mentioned in previous comments, this ‘Blade’ development might take a few more days to complete. The ‘Blade’ should enable UCO to test its 200 currently near 23.00. Student s should note that once again, the 2-period RSI on UCO is oversold with No Trend in place. These were the same conditions that existed earlier in the week that caused me to add UCO to the Model Portfolio.
BTW, one positive for crude (the gooey stuff) is its longer-term inverse Head & Shoulders Pattern. The pattern has been developing since late November 2018 on the Daily Charts. If West Texas Crude stays above 54, it has a good shot at the 66 level in the next 4-6 weeks. This pattern along with positive indicators is one of the reasons I added UCO to the Model.
Model Portfolio: The Model remains 25 percent invested in Crude Oil (UCO) and 75 percent in cash. If the market timing indicators begin to change next week, I’ll begin adding positions in equities and gold. But right now, with the market looking toppy, I want to wait for a signal change before establishing equity positions in the new Model. I just don’t feel a compelling need to establish new positions when I believe the potential gain is limited to 200-300 Dow points, and the potential risk is 1,500 points on the downside. Remember, no stock, no matter how good, goes to heaven. Stocks go to targets and right now, the Dow is still having trouble overcoming its 8 November high of 26,278. That’s why I’m being patient in adding positions to the new Model.
Have a great weekend.
That’s what I’m doing,
Market Signals for
|DOW||POS||15 Feb 2019|
|NASDAQ||POS||07 Jan 2019|
|GOLD||NEU||28 Feb 2019|
|U.S. DOLLAR||POS||28 Feb 2019|
|BONDS||NEG||27 Feb 2019|
|CRUDE OIL||POS||13 Feb 2019|
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