Weekend Strategy Review March 4, 2018
Posted by OMS at March 4th, 2018
Crash? What crash? If you were trading strength on Friday, you had a great day. All five of the stocks I mentioned in Friday’s Comments from the Semiconductor and Computer Sectors finished on the positive side. Apple (AAPL) was up 2 points, HPQ was up 0.22 cents, CSCO was up 0.26 cents, MSFT was up 0.20, and INTC was up 1.14.
If you bought any of the above stocks at almost anytime on Friday, the odds are that you made a profit. If you bought them using my scalp trading techniques, when they were EXTREMELY oversold, you made a Big Profit. For example, if you bought INTC when it’s 2-period RSI was oversold, you were up almost 2 points.
If you were watching Apple (AAPL) and bought the stock when its 2-period RSI was EXTREMELY oversold, you were probably up about 4 points. In Friday’s comments I talked about how Apple (AAPL) was testing its 50-day moving average, and how it was still in an Up Trend (50>200) with its 2-period RSI showing an oversold reading. In other words, AAPL was setting up for a Rifle Trade. So, if you were watching AAPL on the short-term bars and saw the PT indicators turn positive, you knew when to buy the stock.
Why were we watching Semiconductor and Computer stocks like INTC and AAPL? Because these two sectors were leading the Strong Sector List. The List was telling us where the strength was. Once we knew the sectors to trade, all we had to do was go to the Member’s Watch List (MWL) and select stocks from the Strongest Sectors. That’s how we got AAPL, INTC, and the rest of the bunch.
All this happened on a day when the Dow was down 70.92 points. The fact that the Dow was down 390 points intraday didn’t matter. We went into the day thinking the Dow was likely going to trade down to somewhere near the 24,000 level. That was the target we were using as the low point IF the Dow was developing a Bullish sideways triangle. So when the Dow started to approach the 24,200 level, with the 2-period RSI EXTREMELY oversold, with my VTI-volume indicator NOT in the Trend Mode, it was an opportunity to buy Semiconductor and Computer stocks from the Member’s Watch List. Pretty easy.
We knew where to look for strength. The Sector List told us that. We knew what stocks to buy. The Member’s Watch List told us that. All we had to do was wait for the PT indicators on the short-term bars to trigger the trades.
BTW, most stocks got clobbered this week. The Dow was down 771 points. But the tech heavy NASDAQ was only down 80 points after finishing up 77 points on Friday. That’s right, the NASDAQ was up 77 points on Friday. Hmmm? Why the big difference between the two indexes? Both have AAPL and INTC. But the NASDAQ has a lot more semiconductor, computer, technology and small healthcare stocks. And that’s where the strength is in this market.
If you have some time this weekend, take a look at what happen this week to the semiconductor and computer stocks as the Dow dropped about 1,500 points from Monday’s high to Friday’s low. INTC is still trading near its high. Same for Microsoft. Both are still in Up Trends. All this week’s pullback did was to develop a small ‘Blade’ on a Hockey Stick Pattern. Hmmm?
I still don’t know which Scenario is developing, Bullish or Bearish, but IF Friday’s late bounce was sub-wave ‘b’ up of wave ‘c’ down in the Bullish Triangle Scenario, it should continue for another few hundred points before wave ‘c’ down comes in to test the 24,000 level. What will I be trading if that happens? Hmmm?
You know what I’ll be trading. I only trade strength.
From an overall Strategy Perspective, think about this. We have two Scenarios on the Board this weekend: one Bullish and one Bearish. We still don’t know which one will play out. But IF the Bullish Scenario (the large triangle) is occurring, the 24,000 level should provide support for the next leg up (wave ‘d’ up). Wave ‘d’ up could retrace back to the 25,750 level. That’s 1,200 Dow points from current levels. So, if you use Friday’s low of 24, 217 as a stop, and trade strength, that gives you about a 4:1 reward-risk ratio for long trades. I like those odds.
Have a great weekend.
That’s what I’m doing,
BTW, the Sector Ratio improved to 15-9 after Friday’s session. Students should note the positive bias. The Semis, Computers, Healthcare, Technology, and Banks were the still the strongest sectors. If the market rallies, expect stocks in these strong sectors to lead the way higher. The Weak Sectors were the Autos, Transportation, Real Estate, Telecoms, and Insurance. Avoid them like the plaque! IF this market starts to break below 24,000 in an impulsive move (The Bearish Scenario), there is a good chance that these stocks will lead the way lower.
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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.