Weekend Strategy Review October 18, 2015

Posted by OMS  at October 18th, 2015

Friday was another mixed day in the markets that saw the Dow rise 74 points, while the Russell 2K declined a half point.  So the large cap Generals continue to lead, but the troops as reflected by the small caps on the Russell, continue to lag.  The Russell is still significantly lower than its 17 September high, which is a negative inter-market divergence, and cause for concern.

Normally, in good times, it’s the small cap stocks that lead the market higher.  But this is not the case now.  What we’re seeing now is a move towards stocks that pay dividends, as a means of providing some protection.  I’m not sure how much a protection a 3 percent dividend will provide once this market starts to head down.  I believe it’s a false sense of safety.

Anyhow, I spent the past few days at the Traders Expo here in Las Vegas. The Expo gave me a chance to talk with a few friends, and see a few new things.  But when I got back to my rook and had a chance to think about what I just saw, I got the feeling that I was seeing the mining of the miners.

Yeah there were plenty of new things, and the trading screens of all of the brokers lit up the place.  They were really impressive. But the question I kept asking myself as I choked on the huge price tags of the new trading software was will any of this help me make money? Hmmm?

The newest indicator that several vendors were touting was the Ichimoku Cloud.  The indicator kept appearing at the booths of all the oil well drillers, as it apparently was successful at identifying the last trend.  There were Ichimoku charts everywhere.  And there were at least two vendors offering high priced courses on how to trade the indicator.  Hmmm?  My first thought was that it looked a lot like the Aroon Indicator on ThinkorSwim.  I wasn’t impressed.

Another item that caught my eye was a system for identifying cycles called Trade Minor Pro.  This software appeared to be a low priced version of a cycle trading system that has been on the market for years.  Anyhow I had a chance to play with it and to be honest; it did a good job at identifying my ‘Sweet Trade’ in February with HSY, and caught my Christmas trade with ED.  But it did a poor job of identifying my energy trades in March-April, and the late early August trades in the Biotech’s.  So even though they were offering a show special of $198 instead of the normal $350, I passed. (BTW, you also need to update the data base for Trade Miner at a cost of $149/year.)

One of the reasons I was interested in Trade Minor is because IF it could identify candidate stocks that were about to enter a cycle, I would have purchased it because then I could cross check some of the candidate stocks with those being highlighted on my Lists.  Then we could use our indicators to enter and exit the trades.  But at this point, all Trade Minor did was highlight two trades that I already knew about, so I’m still not sure how much benefit the cycle analysis actually adds.

Anyhow, I wrote down a few of the trades I got after looking for “Bearish’ trades in October.  The stocks are listed in order of highest gain for the month, with the best time period for being in the trade. Remember, the trades listed below are shorts.

For example, over the past ten years, MCHP was the biggest loser in October, and statistics show it paid to be short the stock from 1-22 October.  IBM was the next best short from 15-28 October.  Other short cycle candidates were VRTX from 6-22 October, URBN from 7-21 October, and EXC from 30 Sep to 18 Oct. 

After looking at the charts, it’s pretty obvious that most of the trades identified by Trade Miner would not have worked this year. But the jury is still out on IBM.  So if the market starts to decline next week as I expect, you might want to keep your eye on IBM.

BTW, I didn’t see anything that really concerned me about Friday’s rally in the Dow.  It appears that the pullback we saw two days ago was a small wave 4, and the rally since is final wave 5 of Major wave 2 up.

There was a small change in the A-D oscillator on Friday, so we need to be on the lookout for a Big Move within the next 1-2 days.  I wouldn’t be surprised if this Big Move was the start Major Wave 3 down.

Have a great weekend.

That’s what I’m, doing,

h 

Market Signals for

10-19-2015

FAQ

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.