Weekend Strategy Review November 17, 2019
Posted by OMS at November 17th, 2019
Yesterday, as the Dow pushed toward the 28,000 level, traders at the CBOE were buying twice as many calls as puts. This EXTREME level of optimism caused the Put/Call ratio to close at 0.47, the lowest level in over a year. Put/Call ratios like this are almost never rewarded with higher prices.
The Dow finished with a gain of 223 points, closing at 28,004. This was just a few points higher than the target I had been using for the Dow (27,985). The large cap index was up 324 points for the week. The NASDAQ rose 62 points on Friday and was up 66 points for the week.
Friday’s rally on the Dow appeared to be impulse sub-wave 5 of Wave 5 of Major Wave ‘D’ up. This was also true for the NASDAQ, which was undergoing a flat wave 4 for the week, and then made all of its gains on Friday in sub-wave 5 up. So the second scenario I have been describing for the past few weeks, which had the Dow falling to near the 27,500 level before rallying towards 28,000 came to pass. Now we shall see if the second part of this scenario also holds true. This follow-on part calls for a major decline to begin that retraces the entire rally since the Ending Diagonal began in December 2018. In other words, the Dow should begin to decline to the 21,700 level starting anywhere between now and early December. Because of this……
The markets remain at a critical point in their patterns, showing negative divergences and sentiment readings that suggest they could begin to change direction in the days ahead.
There were no changes to the market timing indicators after Friday’s session. The Dow, SPX, NASDAQ, and Russell 2K remain on Buy Signals.
The Dean’s List remains Positive. The Tide is Neutral as the Up-Down Oscillator turned positive on Friday. Students should understand that even with Friday’s rally, three of the four breadth indicators that make up The Tide are STILL negative. This includes the A-D oscillator, which by being negative, tells me that more stocks on the NYSE are declining than advancing. In other words, only a few Dow stocks are pushing this market higher. This is what usually happens to markets as they approach a major top.
The Sector Ratio strengthened to 20-4 Positive after Friday’s The Strongest Sectors were Healthcare, Semiconductors, Service, Food Drugs, and Retail. The Weak Sectors were Household Products, Food, Energy, and Utilities. Now that the 28,000 level on the Dow has been reached, students should watch for changes to the Sector Ratio next week. IF it begins to weaken and turns negative, it will confirm that the large decline I expect during the next few months is underway.
Gold (GLD) fell 0.35 cents to 138.21. Gold remains on a Neutral Signal as it continues to consolidate within its Wave 4 triangle. If this triangle scenario is correct, GLD should be close to a bottom. If the indicators turn positive next week, the Model will re-purchase its gold shares as the large triangle pattern suggests higher prices.
Last week I commented about how the Dollar was working against gold, precluding its Wave 5 rally. However, during the week, the Dollar appeared to complete a wave 2 up, and now appears to be heading down. This would be an important wave 3 down for the Dollar which could take prices toward the 95.84 level. (The Dollar closed just under 98 on Friday.) Now while this doesn’t seem like a big move for the Dollar…it is!!! And IF this decline does begin next week, it should give gold a strong push higher. Watch gold next week. Like I said above, IF the indicators turn positive, the Model will be buying gold.
Also, IF the Dollar begins to decline, watch for the Euro to rally. UDN, the ETF for the inverse Dollar and ULE, the Bullish leverages ETF for the Euro, are now on the Dean’s List near the bottom. If wave 3 down on the Dollar starts this week, watch for UDN and ULE to start moving up on the List. BTW, for conservative traders, ULE closed at 13.49 on Friday. The ETF has formed a TLB pattern with an interim high between the first two lows of 14.09. In other words, 14.09 is the next target. That’s a 5 percent increase from its current level. It’s something to think about if you need some diversification.
Bonds (TMF) have moved to a Neutral Signal. And not surprisingly, neither TMF nor TBT are on the Dean’s List. At this point, the pattern on Bonds is still unclear, so I’m just going to remain on the sidelines and wait for the next signal.
UCO (crude oil ETF) rose 0.54 cents on Friday to 18.39. It got as high as 18.51 before pulling back to close at last week’s high. During the week, my VTI indicator entered the Trend Zone, so there’s a good chance the EFT will begin to test and exceed the 19 level next week. The 19 level is important because this is where the 200-day moving average is located. Once this ‘Rope Jump’ occurs, UCO should begin to move toward its triangle target near the 27-28 level.
There were NO CHANGES to the Model yesterday. The Model continues to hold 1,500 shares of UCO, 800 shares of DXD and $82,270 in cash. The Model plans to use its cash to buy additional shares of inverse index ETFs once the timing signals on the equity indexes turn negative. The Model is up 28.6 percent after Friday’s session.
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.
That’s what I’m doing,
h
Market Signals for
11-18-2019
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 25 Oct 2019 |
NASDAQ | POS | 24 Oct 2019 |
GOLD | NEU | 14 Nov 2019 |
U.S. DOLLAR | NEU | 14 Nov 2019 |
BONDS | NEU | 13 Nov 2019 |
CRUDE OIL | POS | 01 Nov 2019 |
DISCLAIMER
As always, the Professor never makes recommendations. The information is provided on an educational basis so you can have informed discussions with your financial advisors and/or accountants about your individual investment decisions.
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.
Category: Professor's Comments, Weekend Strategy Review