Weekend Strategy Review October 30, 2016

Posted by OMS  at October 30th, 2016

The Dow fell 9 points on Friday, closing at 18,161.   It was up 15 points for the week.  The NASDAQ finished down 25 points on Friday and down 67 points for the week.

Stocks were up 90 points early in Friday’s session until the FBI announced that it would be looking into over 1,000 emails found on disgraced former congressman Anthony Weiner’s computer.  It was interesting that the market started to decline precisely when the 2-period RSI on the Dow reached overbought conditions, showing what happens when the market becomes overbought with No Trend is in place.  So what caused the decline?  Was it the FBI announcement or the fact that the Dow was overbought with NO Trend in place?

I raise the question because the Dow has been in a NO Trend condition for over a month now.  During this time, the Dow has traded in a 500-point range between 17,950 and 18,450.  And during this same time, the VTI has remained neutral, never trading below 32 and never above 48. On Friday, the VTI on the Dow closed with a reading of 40.5, still neutral.  So with only 7 more trading days to go before the election, it’s likely that the Dow will remain within its narrow trading range until the election is decided.

However for the very short term…like next week, we still need to watch the 18,050 level on the Dow.  This is because a small triangle or wedge pattern exists that suggests lower prices.  Triangles are consolidation patterns that usually result a price break out in the direction they entered the pattern.  In this case, prices entered the triangle from higher levels, so the breakout should be down.  If I’m correct about this, the Dow could test the 17,700 level to complete wave ‘D’ down of a larger wedge pattern.  This would set-up a significant post-election relief rally.

On the other hand, the NASDAQ has been forming a major Head and Shoulders Topping Pattern since mid-August.  And on Friday, prices broke through trend line support at the right shoulder of this pattern.  If prices continue to decline early next week, the pattern suggests the NASDAQ will decline about 228 points to the 4,972 level.  The 200-day moving average for the NASDAQ is currently at 5,037.  So traders need to pay close attention to Friday’s low of 5,179 on the NASDAQ early next week. A break of this low could send the index reeling.  And if the NASDAQ starts to decline, it will take the Dow with it.

The Dollar finished lower against major currencies on Friday causing gold to rise.  GLD finished up 0.57 cents at 121.58.  The small up move in GLD appeared insignificant on the day, but it was NOT.  The move caused the VTI on gold to move out of its down trend and finish the day with a reading of 32.6.  The reason this is significant because the VTI on GLD has been below 30 (indicating a down trend) since 4 October.  So now for the first time in almost a month, the VTI is suggesting that gold is no longer in a down trend.  

It’s still very early in the turning process for gold, but IF the metal is going to move higher from a TLB pattern, the first thing that needs to happen is for the down trend to end.  The next step is for GLD to make a ‘Rope Jump’ and the VTI to move above 50.

Most of my money flow indicators for GLD are either positive or close to turning positive.  The P-volume turned positive on Thursday.  So be patient.  The long-term chart continues to suggest that Major Wave 4 on gold is nearing completion and Major Wave 5 up is about to start.  If this is the case, gold is going to move significantly higher.  It’s the reason I’ll be watching to see if GLD can move above 123.26 this week.  A move above the 50-day moving average would be a very positive sign for gold.

BTW, DIG re-tested its 200-day moving average support for the second time on Friday.  The 2-period RSI finished the day with an EXTREMELY oversold reading of 6.17. The VTI on DIG is showing No Trend at 44.6.  So the energy ETF is oversold with NO Trend in place.  Hmmm?  Where’s that Member’s Watch List?  I’m gonna look at a few energy stocks on Monday.

The 2-period RSI on Schlumberger (SLB) is at 2.26 with a VTI of 49.0.  The 2-period RSI on NBR is at 0.78!!! with a VTI of 59.  So the stock is still in an Uptrend (50>200) with the VTI is showing a positive bias.  The 2-period RSI on CLR is at 1.8 with a VTI of 50.8.  The stock is in an Up Trend (50>200) on the Daily chart and the recent pullback has caused a nice Hockey Stick to form.  Same for HAL (2-period RSI at 1.6 with a VTI of 71.4).

I’ll be looking at all of the above energy stocks as TRADES only!  I’m still not planning on holding a lot of equities going into the election.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

10-31-2016

FAQ

Only getting the Professor’s Weekend Review? Try his daily update Cum Laude service fro 2 weeks only $9.99 LEARN MORE

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.