Weekend Strategy Review May 27, 2018
Posted by OMS at May 27th, 2018
The markets closed the week with another mixed session. The Dow was down 59 points on Friday, closing at 24,7531. It was up 38 points for the week. The NASDAQ was up 9 points on Friday, and 80 points for the week. It appears that I didn’t miss much by taking the week off to visit the Cape Cod-Martha’s Vineyard area.
Friday’s action on the Dow is starting to look more like the development of Wave ‘e’ down of the large triangle than anything else. Concern about a trade war with China has resurfaced and the canceled summit with North Korea is having a negative effect on the market. It’s causing the pattern to morph from what should have been a small Wave 2 pullback into a shallower pullback for Wave ‘e’. Doesn’t really matter much which wave count is occurring as the result for both patterns should be higher prices.
The thing I’m looking for now is some type of impulsive breakout to the upside. Again, it doesn’t matter which wave count is occurring, what the market needs now is a breakout move to the upside to confirm that the next major wave up (Wave 5 up) is underway.
With my combination VTI-volume indicator on the Dow and NASDAQ still on a Buy Signal, this is a time when you need to have a little patience.
I still believe that students using the Strong Sector List to select stocks from the Member’s Watch List will be handsomely rewarded. If the Dow starts to break out of its current pattern and begins a move toward 26,600, stocks in the strongest sectors will lead the way higher. As long as my VTI-volume indicator remains positive, this will continue to be my strategy.
At this point, I’m leaning more toward owning NASDAQ and small cap stocks. I believe these issues will be less likely to be impacted by a trade war, which I don’t believe will happen. To me, there are far better ways to solve the relatively small political problems of making steel and aluminum than tariffs. How about subsidies for starters? We do this all the time in other industries. No, we don’t want to start a trade war over imported steel! Remember, China owns a lot of our Bonds. Does the President really want to pick a fight with China at a time when they have so much leverage over us? NO!!!! And we certainly don’t want to go to war with Canada over aluminum. It’s stupid! All this is impacting the Dollar, pushing it higher, which causes the large cap internationals on the Dow a lot of problems. A stock like Caterpillar (CAT) has been in a funk for the past 5 months because of the rising Dollar. If the Dollar starts to turn lower, which I expect, look for stocks like CAT, BA, and others to explode higher. But not just now.
Right now, I’m sticking with the semis, healthcare, and technology. Intel (INTC) is in the Trend Mode. Same for Apple (AAPL) and most other computer stocks. BTW, students might want to look at the nice Hockey Stick pattern that has been forming on AAPL since the beginning of May. The pattern suggests that AAPL could easily see the 205-210 level or higher. It’s currently trading at 188. What happens to AAPL and INTC directly impacts the NASDAQ, which is also in the UP-TREND Mode. That’s why I have been buying (and holding) shares of QLD, the positive leveraged 2X tracking ETF for the NASDAQ. APPL ad QLD are currently near the top of the Dean’s List. Same for IWM, the tracking stock for the Russell 2K. This tells me all I need to know about the strength of small caps vs. big cap stocks.
On the other hand, while I’m buying and holding the semis and tech now, I’m also watching the Dollar closely. Right now, UUP, the positive tracking stock for the Dollar is on the Dean’s List. This tells me the Dollar is strong, which means the big cap international stocks will have a tougher time of it. But the Dollar is starting to look toppy, so I’m watching for UUP to fall off the List and for UDN, the inverse Dollar ETF to appear. When/IF it does, that’s when I’ll be looking to load up on the big caps. Not now.
I’m also watching the Dollar (UUP) for its impact on gold. As I’ve mentioned several times on these pages, I believe that gold appears ready to break out from its large corrective Wave 2 pattern. If it does, it should push UUP off the Dean’s List. This doesn’t have to happen, but rising gold prices are usually associated with a weaker dollar, so IF you’re heavy into gold, you want to see UND, not UUP on the Dean’s List.
The Sector Ratio rose to 15-9 on Friday. The Strong Sector List was led by Energy, Healthcare, Consumer Products, Semiconductors, Computers and Materials (which includes gold). The Financials are on the List near the bottom. So, the Strong Sector List is starting to look like what I would expect for a run higher. BTW, students should also take a quick look at the length of the Dean’s List this weekend. It’s strong! It’s NOT the kind of List that one would expect to see if the market was about to move lower. It’s just the opposite, so have patience.
Anyhow, the markets will be closed Monday for Memorial Day. Take some time this weekend to remember all those who gave their lives so that we can have the freedoms we enjoy today. If you’re traveling and see someone in uniform, go up to them and thank them for their service. Offer to buy them a sandwich or a drink. It will make them feel good, but it will make you feel better.
Have a great Memorial Day Weekend.
That’s what I’m doing,
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