Weekend Strategy Review May 19, 2019
Posted by OMS at May 19th, 2019
Late yesterday afternoon, an hour before the close, China announced that its trade talks with the U.S. had failed. They suggested that talks between the world’s two largest economies would be meaningless unless Washington changed course. The markets, which had been trading higher, fell on the news. It was almost like they timed the announcement to give investors something to think about (fear) over the weekend.
The Dow finished the day down 99 points, closing at 25,764. It was down 179 points for the week. The NASDAQ finished down 82 points on Friday and was down 101 points for the week. It was the fourth consecutive week that the Dow has lost money.
It still appears that the markets are working their way through a small a-b-c pattern within Wave ‘B’ down. Friday’s mid-day rally was likely the completion of wave ‘b’ up, with wave ‘c’ down of Wave ‘B’ down now underway. If this scenario is correct, the Dow should work its way down to the 25,000 to 25,200 level over the next week or so. Then once Wave ‘B’ down completes, the markets should begin to rally into the fall as Wave ‘C’ up unfolds. This rally could take the Dow to new highs.
That’s the Bullish Scenario. The Bearish Scenario is that the Bull Market topped on 23 March at the 26,696 level and that everything since has been associated with the initial waves on the new Bear Market. I’m not buying into the Bearish Scenario….at least for now. The problem for me is the Money Flow indicators. I’m still not seeing the large institutions doing much selling.
Last October, the institutions began selling in mass about a week before the Dow started to tumble. When the Dow reached a high of 26,952, there was clear evidence of negative divergence in the Money Flow indicators. This is NOT the case now. Right now, it’s just the opposite of what we had back in October. While stocks have declined since the beginning of May, the Money Flow indicators have increased. That’s positive divergence!!! In other words, the Money Flow indicators are supporting the case for a continuation of the Bull Market once Wave ‘B’ down completes.
I should point out that things are not as rosy when I look at the weekly charts. Last week, I mentioned that the volume portion of my VTI-volume indicator on the weekly chart of the Dow turned negative. This week, the indicator fell even lower. This is NOT a good sign for the longer term. So even though intermediate-term pattern continues to suggest a rally into the fall, it’s likely that a substantial decline will occur after that potential rally completes.
There were NO CHANGES to my market timing indicators after Friday’s session. The Dow, NASDAQ, SPX, and Russell 2K remain on Neutral Signals.
The Tide and the Dean’s List turned Negative after yesterday’s session. The DMIs remain Negative.
The Sector Ratio fell to 16-8 negative after yesterday’s session. The Strong List was led by Real Estate, Insurance, Food Drugs, Foods and Telecoms. These are all defensive sectors. This is NOT the List you want to see if you’re Bullish on the markets. The Weak Sector List was led by Service, Energy, Material, Retail, and Banks.
Model Portfolio: There were NO CHANGES to the Model after yesterday’s session. The Model continues to hold a small ‘trial’ position (500 shares) of DXD, a 2X inverse leveraged ETF for the Dow. The Model is also holding a small ‘trial’ position in SCO, the inverse ETF for West Texas Crude Oil. The rest of the Model Portfolio, $77,364, remains in cash.
The Model continues to beat the S&P by a better than 3:1 margin, even though the conditions the Model was designed to take advantage of have not occurred to date. Again, all I’m looking for the model to do under the current conditions is to stay even with the S&P. The fact that it’s currently beating the S&P is a plus.
BTW, students should take some time this weekend and reflect on the timing signals that drive the Model. While the overall market was being whip-lashed last week by news from China, Iran, and North Korea, the Model was mostly in cash. I think this says a lot about the overall strength of the timing signals. In times like this, with news and Presidential ‘tweets’ causing the market to move several hundred points in a day, it’s nice to see a Model ignore the news and just sit there waiting for a trend to develop. I don’t know about you, but I like that. I hate being jacked around!
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,
Market Signals for
|DOW||NEU||10 May 2019|
|NASDAQ||NEU||06 May 2019|
|GOLD||NEG||17 May 2019|
|U.S. DOLLAR||POS||16 May 2019|
|BONDS||POS||01 May 2019|
|CRUDE OIL||NEU||06 May 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.