Weekend Strategy Review September 29, 2019

Posted by OMS  at September 29th, 2019

On Friday, the markets fell early, then recovered about half their losses by the end of the session. The early decline felt impulsive, which is something you would expect if Wave 3 down is starting. The Dow finished with a loss of 71 points at 26,820. It was down 115 points for the week. The NASDAQ fell 91points on Friday and was down 178 points for the week. It was the second consecutive week the Dow lost money. The decline caused the Weekly DMI on the Dow and NASDAQ to turn negative. Weekly DMI changes are usually a sign of a Major Trend reversal, with the average trend time since early 2018 being about 12 weeks.

The market timing indicators on the Dow, NASDAQ, SPX and Russell 2K are Negative.

The Daily DMIs on the Dow, NASDAQ, SPY, and Russell 2K are Negative.

The Dean’s List remains neutral while The Tide is Negative.

The market remains in a very fragile condition. The fact that the indicators have turned Negative increases the odds that the market indexes will begin a significant decline in the days ahead. The fact that the Weekly DMIs have turned negative suggests the decline could last several months.

The Sector Ratio weakened to 12-12 Neutral after Friday’s session.  Last week, the Ratio was 19-5 Positive, so it appears the sectors are beginning to confirm what we’re seeing from the indicators.  Once the downward momentum begins to pick up, the Sector Ratio should swing to a more negative number. The important thing to watch will be which sectors are leading the market lower.  Right now, Energy, Leisure, Media, Transportation, and Real Estate are the weakest sectors.  Computers, Technology and Consumer goods are also on the Weak List, but near the bottom. If these ‘aggressive’ sectors start to move higher on the Weak List, it will be a sign that the Wave ‘D’ decline could be lower than I expect.

Let’s talk about this wave count for a minute…. Right now, it appears that the markets are starting a Major Wave ‘D’ down. This is important because by labeling the decline as Major ‘D’ down, it means that once it completes, likely from significantly lower levels, there should be a major Wave ‘E’ rally before the Bull Market ends. My current target for Major Wave ‘D’ down is near or below the 24,000 level.  After that, Major Wave ‘E’ up should begin and take the Dow to new highs.  But before all this happens, we must deal with Major Wave ‘D’ down.  Right now, it appears that we’re just starting Wave 3 down of a five wave sequence for Wave ‘D’ down.  My target for Wave 3 down is near or below the 26,000 level. 

BTW, the Wave ‘D’/ Wave ‘E’ scenario has some interesting political ramifications as well.  As most of you know, I try to avoid a discussion of politics on this web site.  But the Wave ‘D’ /Wave ‘E’ scenario suggest that the next few months will see some rough sledding in the markets, with the on again, off again trade discussions with China, and now the impeachment hearings going on in Washington next week causing major bumps.  But the thing I find interesting about all of this is that once the markets complete their Wave ‘D’ decline, the pattern suggests that something very positive will happen that will cause the markets to rally.  I don’t want to speculate here as to what that might be, but IF the current decline is part of Wave ‘D’ down, the pattern suggests that a major positive event will occur that will cause the markets to rally into the election.  In other words, the overall pattern suggests a decline during the next few months to near 24,000, then rally back above 27,399, possibly above 28,000 into the elections.  After that, it’s all downhill as once Wave ‘E’ up completes, the next Bear Market will start and last for years.  At least this is what the longer term pattern on the charts suggests now.  On the other hand, IF 24,000 on the Dow doesn’t hold, all bets are off for a Wave ‘E’ rally and the Dow could easily decline to the 21,712 level, which is where the current Ending Diagonal pattern began.

So, what I’m trying to tell you here is that the markets could see a lot of volatility in the months ahead.  Not to worry.  I also believe that our indicators will keep us on the right side of the markets and should continue to produce positive results.

Gold (GLD) fell 0.73 cents on Friday closing at 141.06. The decline caused the DMI to turn negative telling me that wave ‘b’ up is over and wave ‘c’ down is now underway.  I’m still looking for GLD to get closer to the 137-138 level before I get interested. Then once wave 4 completes, gold (the metal) should rally to the 1,600 to 1,650 level as wave 5 of Major Wave 3 up unfolds.  The Model continues to wait for a signal change before buying gold again.

Bonds moved sideways on Friday, with TMF gaining 0.26 to 30.47. The rally for the past week or so has produced the Blade of a negative Hockey Stick that projects a decline to the 22-23 level.  The market timing signal for Bonds remains Neutral, but my Money Flow indicators are telling me that Bonds are hemorrhaging money.  All I’m doing now is waiting for a signal change before adding a few shares of TBT, the inverse ETF for Bonds, to the Model.

There were no changes to the Model after Friday’s session. The Model continues to own 1,000 shares of DXD, 700 shares of QID, and 600 shares of SQQQ. The Model is currently up 28.2 percent, which translates to an annualized return of 52.4 percent. The Model also holds $60,875 in available cash.  

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.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

09-30-2019

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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.