Weekend Strategy Review October 20, 2019

Posted by OMS  at October 20th, 2019

The markets fell hard on Friday on relatively light volume and neutral breadth (A/D ratio closed at .97:1). The Dow finished with a loss of 256 points at 26,770. It was down 49 points for the week. The NASDAQ fell 67 points on Friday but was up 32 points for the week. Friday’s decline DID NOT cause a change to any of the market timing indicators on the cockpit.

The timing indicators on the Dow, NASDAQ, SPX, and Russell 2K remain Positive.

The Daily DMI on the Dow, NASDAQ, SPX and RUT remain Positive.

The Dean’s List and Tide remain Positive after Friday’s session.

The market remains in a very fragile condition.  With mostly positive indicators on the cockpit, the odds still favor a continuation of Friday’s rally before a major top is in.  That top could occur within the next few weeks.

From a pattern perspective, Friday’s decline didn’t do enough damage to change the wave structure within the Bullish Wave ‘D’ up scenario.  Even though the Dow declined to 26,770, the odds still favor a rally toward the 27,500+ level during the next few weeks. However, a decline below the 3 October low of 25,743 would negate this scenario.

One of the reasons I remain Bullish is because the SPX and NASDAQ were a lot stronger than the Dow on Friday, with both closing well above their intraday lows.  This non-confirmation suggests there is still a lot of strength in this market that could cause the markets to rally next week.  We should learn a lot when traders come back to work on Monday.

Another reason I’m still Bullish is that the Sector Ratio strengthened to 18-6 Positive after Friday’s session!!  That’s right…the Ratio increased by one positive sector.  It’s also very Bullish at 3:1 positive!  I can’t get too negative on the market when there are still 3 sectors moving up for each sector moving down. The Strongest Sectors were Service, Retail, Consumer Products, Semiconductors and Healthcare.  The Weakest Sectors were Leisure, Energy, Media, Household Products and Utilities.

Bottom Line:  The markets should remain extremely volatile.  As long as the market timing indicators AND the Sector Ratio remain positive, the odds still suggest 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.  A change in the timing indicators would negate this Bullish Scenario and likely mean that Wave ‘D’ up has truncated.

Gold (GLD) fell 0.15 cents to 140.46.  It’s still not clear if Wave 4 down on GLD is complete or has more downside to go.  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 were flat on Friday with TMF dropping a penny to 28.48. The 2-period RSI on TMF closed with an oversold reading of 17.34 on Friday with NO TREND in place. So, Bonds should bounce early next week allowing the Model to re-establish its short position from a higher level.  Right now, there’s a lot of talk about interest rates going to zero or less.  But this is NOT what the charts are suggesting.  The current chart for Bonds suggests that Bonds will begin a small counter trend wave 2 rally next week before Wave 3 down resumes, driving interest rates significantly HIGHER.  Before Wave 3 down completes, Bonds could drop 6-8 points from current levels.  That’s a Big decline for Bonds.  And usually…not always, when Bond prices decline, equities tend to rise.  In other words, the Bond chart is also suggesting that Wave ‘D’ up in equities is not complete.

Shares of UCO (crude oil ETF) dropped 0.15 cents on Friday to 15.94.  It still appears that UCO is working its way through the final stages of its triangle pattern. A move above the 11 October high of 16.60 would quickly get my attention.  Until then, I’m just being patient.

Anyhow, now that the Model exited its position in TBT on Friday, it only holds a ‘trial’ position in Crude Oil and $110,575 in cash. The Model is now up 26.5 percent since inception, which translates to a gain of 44.2 percent on an annualized basis.  With the Dow dropping 256 points on Friday, the Model is looking at a potential trade in DDM, the 2X positive ETF for the Dow.  But it really wants to see how the market (Dow) reacts on Monday. 

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

10-21-2019