Weekend Strategy Review October 14, 2019
Posted by professor at October 14th, 2019
The markets rallied hard on Friday on news that trade talks with China were going favorably. The Dow finished with a gain of 320 points at 26,817. It was up 243 points for the week. The NASDAQ rose 106 points on Friday and was up 75 points for the week. The rally caused major changes to several of the market timing indicators for equities, gold and bonds. There were also major changes to the Dean’s List, Tide and Sector Ratio.
The timing indicators on the Dow, NASDAQ, SPX, and Russell 2K have turned Positive.
The Daily DMI on the NASDAQ and Russell 2K have also turned Positive. The Daily DMIs on the Dow and SPX remain Negative. The Weekly DMI on the Dow and NASDAQ remains Negative.
The Dean’s List and Tide turned Positive after Friday’s session.
The market remains in a very fragile condition. With mostly positive indicators on the cockpit, the odds now favor a continuation of Friday’s rally before a major top is in. That top could occur within the next few weeks.
While the DMI on the Dow stayed negative, it’s barely negative with a reading of -0.59. The daily DMI on the NASDAQ turned positive. So, with mostly positive indicators supported by extremely strong breadth and volume, it now appears the markets are headed higher and should move above the 16 July high of 27,399.
From a pattern perspective, Friday’s move above 26,800 means that the triangle pattern that has been forming since early summer is not complete and a rise to the 27,500-27,700 level is likely. The rally also changed the wave count.
Because Friday’s rally moved above 26,800, I can no longer consider the moves off the 16 July high as Waves 1 down and 2 up of a major move down toward 21,700. Friday’s rally completely destroyed this scenario. (See first attached chart). That’s because NO part of Wave 3 down can violate the territory of sub-wave 2 of Wave 3 down, which Friday’s rally clearly did. This means the large Ending Diagonal Pattern that has been forming since the low on 26 December probably has one more higher high to go before it completes. If the first wave off the a-b-c pattern from the 15 August low is measured, Wave ‘a’ was 1,906 points. So by adding these 1,906 points to the 3 October low of 25,744, the new target for Major Wave ‘D” up is now the 27,650 level.
The upper red trend line on the revised chart (See second chart), which starts from the September 2018 high of 26,769, also supports a move to the 27,650+/- level.
If this rally occurs, it means that the next Bear Market would start immediately after Wave ‘D’ up completes. From a timing perspective, and because of the strength of Friday’s rally, the next two weeks should be very positive. However, after that, things could begin to change radically. Right now, it’s looking like the market will top in late October or early November. We’ll see.
Bottom Line: The markets should remain extremely volatile as news on the trade deal with China has Wall Street’s full attention. Heck, the Dow dropped over 100 points on Thursday afternoon, when it was announced that lunch for the representatives was late! The Dow dropped over 200 points in the last 20 minutes on Friday when it was announced that the deal would only be a ‘partial’ measure. The volatility is becoming crazy!!! But despite the EXTREME volatility, the odds are high the Dow will move above the July high of 27,399 and top somewhere between 27,500-27,700 level during the next few weeks. The rally could extend closer to the 28,000 level, but it’s not likely.
The Sector Ratio strengthened to 13-11 Positive after Friday’s session. The Strongest Sectors were Service, Retail, Semiconductors, Consumer Products and Food Drugs. The Weak Sector List was led by Energy, Leisure, Real Estate, Media, and Utilities.
Gold (GLD) fell 0.78 cents to 140.03. The decline caused the timing signal on gold to move to a Sell Signal. The signal change tells me that gold has more downside to go before Wave 4 down completes. It still appears that GLD will test the 137 level during the current decline. I’m avoiding gold until I see evidence that Wave 5 up has started which will likely be once the top in equities is in.
Bonds fell on Friday as equities moved higher. The decline in Bonds I saw coming when I talked about a potential buy in TBT for the Model is now underway. However because the pattern suggests the decline in Bonds will only be temporary, I will need to see a small bounce in Bonds before I can trade them for the Model. If that bounce occurs next week, I’ll let you know.
The Model exited all its inverse index ETF positions after Friday’s session. The Model is now 100 percent in cash ($125,725). After Friday’s hit, the Model is now up 25.7 percent, which translates to a gain of just under 45 percent on an annualized basis.
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
10-14-2019
DMI (DIA) | NEG |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 11 Oct 2019 |
NASDAQ | NEU | 11 Oct 2019 |
GOLD | NEG | 11 Oct 2019 |
U.S. DOLLAR | NEG | 11 Oct 2019 |
BONDS | NEG | 11 Oct 2019 |
CRUDE OIL | NEU | 11 Oct 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.
Category: Professor's Comments, Weekend Strategy Review