Weekend Strategy Review September 21, 2013

Posted by OMS  at September 21st, 2013

The Dow fell 171 points on Friday, closing at 15,465. It was up 89 points for the week. The Nasdaq was also down 14 points on Friday, closing at 3,774. It was up 52 points for the week.

After noting three successive days of EXTREME readings from the A-D oscillator, Friday’s pullback was expected.  The A-D oscillator fell to a more normal reading of 102, setting the stage for further advances in the weeks ahead.

One of the things I noted after looking at Friday’s data was that large decline did absolutely nothing to alter the rise in the Summation Index or the Hi-Lo oscillator.  So breadth remains positive and with an A-D oscillator reading of 102, it tells me that the majority of stocks on the NYSE remain in strong up trends.

However Friday’s decline did manage to drop the 2-period RSI Wilder into oversold territory.   So with stocks in an Uptrend, and a 2-period RSI Wilder oversold, I started to do some buying late Friday.

I still believe that yesterday’s pullback occurred because the market got a little ahead of itself, and will spend the next few days trying to develop ‘Blades’ for the large ‘Sticks’ that were formed since the beginning of September.  And that once these Blades are complete, the Dow should resume its push toward the 16,000+ level.

Yesterday I received an email from Tony K. asking how I calculated my targets of 16,200-16,300 for wave 3 up.   All I did was measure the wave 1 which was 1107 points and multiply it by 1.38 or 1.5.  Then I simply added this to the 28 August low of 14,760.  This got me a range between 16,287 and 16,420.  Wave 3s are usually anywhere between 1.38 to 1.5 of wave 1.  Also because I tend to be a bit conservative with my predictions, I settled on a target between 16,200 and 16,300.   That’s about 735 to 835 Dow points from where we closed on Friday.

With a positive Dean’s List, positive PT indicators, a very active Professor, positive breadth and an oversold 2-period RSI Wilder, I believe it’s a good time to be buying equities.

And that’s what I was doing late Friday.  I was able to buy back the shares of SLB for over 2 points from where I sold them earlier in the week.  I also bought back a few shared of RCL for a buck less than where I sold them.  And I added to my shares of Ford, F, at an average price of about 17.40.  Ford continues to form the Blade of a small Hockey Stick pattern that should see it trading above 19 in the near future.

I also bought a few shares of DDM near its low of 100. 

On Sunday, the results of the German election will be known, with current Chancellor Angela Merkel looking to be on track to win a third term.  Germany is Europe’s strongest economy and sells more stuff abroad than any other country in Europe.  But there are threats to the current situation, namely high energy prices thanks to the reversal of its nuclear power policy and an overly complex and uncompetitive tax system.  The iShares of Germany, EWG,  are currently ranked high on the Dean’s List, and IF Ms. Merkel is able to win re-election,  I would expect the rise in EWG to continue.

On the domestic front on Friday, the House passed a short-term budget bill that would pay for government operations through mid-December but withhold funding for Obamacare. This is something that all Americans should be watching as the Senate returns next week.  The key to change hinges on the votes of 5 Senators who are up for re-election.  It might be a stretch, but If these Senators switch sides and vote to de-fund or delay the implementation of Obamacare, we could see the market start one of the largest rallies we’ve seen in awhile.  Obamacare has been an absolute job killer to our economy, turning America into a part time nation.  If the discussions in Washington during the next few weeks result in the law being delayed or killed, I believe we could be looking at Dow 17,000+ by Christmas. 

Wouldn’t that be nice?

Bottom line:  I believe there are a lot of reasons for being invested in equities now.  Sure we have to get past a few clouds, like a debate on raising the debt ceiling, and a CR to fund the government.  But as we know, these are more of a concern to the talking heads on CNBC than to us.  The government will be funded and the debt ceiling raised.  The events and news associated with these actions will only produce temporary clouds.  The elephant in the room is still Obamacare.  And now the House has put it back on the table.  With a little luck, something will be done to remove its harmful effects on the economy.  And if this happens, you will definitely want to be invested in this market.

Have a great weekend,

That’s what I’m doing.

h

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