Professor’s Comments March 21, 2019

Posted by OMS  at March 21st, 2019

The markets were mixed again yesterday.  The Dow fell 142 points, closing at 25,746.  The NASDAQ gained 5 points while the SPX lost 8 points.  Volume on the NYSE was moderate, coming in at 101 percent of its 10-day moving average. There were 86 new highs and 42 new lows. 

The Fed announced that they will be ending their selling program (Quantitative Tightening) having reduced their balance sheet from $4.5 to 4 trillion. They also said they won’t be raising interest rate in 2019 with one possible in 2020.  In other words, the Fed is now seeing a slowing economy, with little inflation and lower GDP growth ahead.  This is not something the market wanted to hear.

The Fed’s announcement did not produce any significant change to the market timing signals. The Dow (DIA), NASDAQ-100 (QQQ), S&P500 (SPY), remain on Buy Signals. However the Russell 2K moved to a Neutral Signal (a warning) from a Buy.  The volume portion of my VTI-volume indicator was hit hard yesterday and is now very close to going negative.  A down day today will likely cause a signal change.

Also, The Tide is close to turning negative, as three of the four breadth indicators have turned negative.  The Up-Down Oscillator is the lone positive holdout. A negative A-D oscillator tells me the current rally is NOT healthy.  The fact that this indicator has been mostly negative since 28 February, except for one day, is one reason the Model took some money off the table going into yesterday’s Fed Meeting.

Another reason for lightening up was the Sector Ratio.  After yesterday’s session the Sector Ratio stayed at 18-5 positive.  If you recall, the Ratio has been EXTREMELY positive (20+ positive sectors or more) for the past few weeks supporting the rally.  But now it appears to be changing by becoming less positive.  Is the Sector Ratio seeing the same slowing economy the Fed is?  Wasn’t it just in December that the Fed was putting out EXTEMELY Bullish statements?  Hmmm?  I wonder what changed?  Yesterday’ announcement was a far cry from what the Fed was saying just a few months ago.  It’s interesting to me that the Utilities sector is now starting to move back up the Strong List again. Investors buy the Utes when they’re worried.

The Strong List was led by Semiconductors, Technology, Household Products, Healthcare, Computers, and Utilities.  The Weak Sectors are FoodDrugs, Autos, Media, Leisure, and Telecoms.

Gold and mining stocks rose slightly yesterday. GLD rose 0.80 cents to 124.18.  The ETF continues to form a pattern that suggests wave ‘b’ up of Wave 2 down is nearing completion.  If this is the case, wave ’c’ down could take gold (the metal) back down to the 1250 level before wave ‘c’ down completes.  This would mean that GLD could trade back down to the 120 level before Wave 2 down completes.  The 120 level is approximately where the 200-day moving average is located.

Crude Oil (UCO) continued its rally yesterday, with UCO gaining 0.74 cents to 21.53.  UCO still appears poised to test its 200-day moving average currently located at the 22.67 level.  It should be interesting to see how crude oil reacts to the Fed’s latest policy statement over the next few days, as a slowing economy should put a damper on crude oil prices.

Model Portfolio:  There were No Changes to the Model after yesterday’s session.  The Model is currently only holding a half position in Crude Oil (UCO). The remainder of the theoretical $100,000 portfolio, $88,936, remains in cash.

BTW, yesterday’s trading action put the Model’s overall gain at $3,253.77 without taking commissions into account.  The Model was started on 26 February, so it’s been in effect for about 3 three weeks.  During the period, the Model has gained 3.21 percent vs. a gain of 1.01 percent for the S&P.

Comment:  The past three weeks have been a good test for the Model. During this time, the Dow has dropped 312 points while large cap technology stocks on the NASDAQ were essentially flat (up 30 points).  The Model pretty much ignored the flat to down action on the equity indexes and concentrated on Crude Oil and to a lower extent gold, producing a gain of 3.2 percent.  It will be interesting to see how the Model reacts to yesterday’s change in Fed policy going forward.  Surely, if the Fed is correct about a slowing economy with little inflation, investor interest in crude oil, gold, and equities should begin to taper off. This lack of interest should start being reflected in the Model.

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

03-21-2019

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