Weekend Strategy Review May 24 2020

The markets were mixed on Friday in pre-Holiday trading.  The Dow finished with a loss of 9 points, closing at 24,465.  It was up 780 points for the week.  The NASDAQ gained 39 points on Friday and was up 310 points for the week.

Friday’s low volume session produced a second consecutive small change signal in the A-D Oscillator.  This means that we need to be on the lookout for a Big Move when the market re-opens on Tuesday. Given the sideways triangle pattern that has developed during the week, along with positive market timing indicators and a strong Sector Ratio, I would expect that move to be up.  It should be the final wave in the retracement rally that started from the 23 March low, testing the 29 April high of 24,765 and eventually completing near the 25,000 level. 

If the market does begin to move higher next week, the rally could be swift.  So, students will need to be on their toes, and NOT get caught up in the hype of the new high.  Remember, last week we saw several EXTREME P/C ratios come in from the CBOE, reflecting unrealistic investor optimism.  These EXTREME ratios MUST be taken seriously, especially since they are occurring at a time when the pattern suggests the potential rally is final wave 5 of a Major five wave retracement.  So, if the market starts to move higher, students should try to avoid the FOMO, and instead begin looking to establish short or inverse positions as the Dow moves above the 24,765 level.  BTW, it’s still possible that the Dow could push well above the 25,000 level, as a full Fibonacci retracement could take the Industrials as high as 25,865.  I doubt that this will happen because of the EXTREME amount of optimism in the market now, but it could.  Students should watch for a change in the Market Timing Indicators as a Negative turn would likely signal the next leg down of the Bear Market is underway.  Remember, my target for the next wave down, Major Wave C down, remains below the 18,000 level.

The Market Timing Indicators for the Major Indexes are Positive.

The Dean’s List and The Tide are also Positive.

The Sector Ratio came in at 22-2 Positive after Friday’s session.  The top 5 strongest Sectors were Material (includes gold) Energy, Technology, Cap Goods, and Healthcare. If the market begins to move higher on Tuesday, the above sectors should lead the way.  The two weak sectors were Banks and Real Estate. Students should note that even though the Dow gained 780 points for the week, the Banking Sector, which has been near the top of the Weak List for weeks, did not participate in the rally. The sector will be one of my top candidates for a short IF the market moves to higher levels. On the other hand, you might want to take a quick look at what gold and mining stocks have been doing since mid-March. The Materials Sector has been leading the Strong Sector List for how long???? If you want to know where the strength is so you can select a few stocks to trade…….just look at which sector(s) are at the top of the Strong List. Stop worrying about what the overall market is going to do. Pay more attention to which sectors are the strongest. That’s where you want to be.

Gold (GLD) rose 0.96 cents on Friday to 163.21. At this point it’s not clear what the next move in gold will be. If stocks start to move higher, the pattern suggests gold and mining stocks could pull back as money moves out of gold and into other, more attractive equities.  The Gold Miners Index, the HUI, closed at 285 yesterday.  The chart suggests it could pull back to the 240 level.  If this happens, I will view gold and the miners as an attractive buying opportunity, as the next wave would likely be an impulsive wave 3 up.

Same for Bonds.  If equities begin to move up next week, Bonds should fall.  The Model’s shares of TBT could be an attractive place to be.  The 2-period RSI on TLT is overbought at 85.28, with the VTI showing No Trend (45.12). 

The Model continues to hold 600 shares of TBT, and 500 shares of GOLD, 40 shares of UCO, with a cash balance of $73,747. 

I bought a ‘trial’ position in DDM for my own account late Friday when my new Scalp Trading Indicators turned positive.  This was a case where I used the new indicators to establish a Position Trade, something I plan to hold for the next few days.

The market will be closed on Monday, 25 May, in honor of Memorial Day.  My next Update will be on Wednesday, 27 May.  

Have a safe holiday weekend,

That’s what I’m doing,

h

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.

Market Signals for

05-26-2020