Professor’s Comments March 23, 2017
Posted by OMS at March 23rd, 2017
The Dow fell 7 points, closing at 20,661. Volume was moderate, coming in at 101 percent of its 10-day average. There were 34 new highs and 86 new lows. Students should note how the number of new lows is increasing and now outnumbers the new highs.
The VTI on the Dow continues to head down, but is still only showing a reading of 61.1. This means that additional downside is likely, but until I see it below 50, I still can’t get too aggressive with my short positons.
The 2-period RSI is oversold at 2.73 with no trend in place. This means that the market could pull back or trade sideways for a few days to relieve the oversold conditions before the next leg down starts.
Yesterday’s Sector Report was little changed. The report had 20 strong sectors and 4 weak. The Semiconductors, Leisure, and Computers continue to be the strongest of a weakening list. The Energy, Service, Media, and Retail Sectors are the weakest
I received a question from a subscriber yesterday asking about why I haven’t talked about my new Sector Rotation Strategy in a while. Here’s what I told her.
“When I did the webinar on the Sector Rotation Strategy, I felt the market was too close to a top to be initiating the strategy, so I held off. This proved to be a smart move.
But now that the market appears to be rolling over, I’m starting to look at the short side.
The problem now, which I talked about this morning, is that the Trend Scores in the sectors are still way too strong to start an aggressive shorting program. This morning 10 of the 20 sectors in the strong sector report still had positive Trend Scores. So, the odds are only 50-50. These are not good odds.
Also, the 24 sectors consist of mostly large cap stocks within the S&P500, and right now the positive ETFs for the S&P500 are back on the Dean’s List.
Because of this. I’m mostly trading gold and looking for shorts in the Russell 2K, by either buying the inverse index ETFs (TWM and RWM) or shorting individual stocks. The small cap stocks are not divided up into neat sectors like the S&P500, so I can’t measure the strength of sectors like I can with the SPX.”
One of the things I did not mention in my email was that trading the short side is a lot different with the sectors. This is mainly because there aren’t as many inverse sector ETFs available for the individual sectors. And those that are available trade with very low volume. Also, many of my students are still somewhat leery of the short side and prefer inverse ETFs instead of shorting out right. This is another reason why students might just want to buy a few inverse index ETFs as they appear on the Dean’s List vs. shorting individual sectors or stocks. It makes managing a portfolio a lot easier.
But right now, it’s a moot point. With 3 of the 4 positive index ETFs still on the Dean’s List, a VTI on the Dow sill showing a positive bias, and 9 of the 20 Strong Sectors still showing positive Tend Scores, the momentum shift to the downside is only beginning.
The only index currently showing a negative VTI right now is the Russell 2K. It has a VTI reading of 35.8. This is the reason I continue to focus on small cap stocks, and continue to look for opportunities to buy a few shares of TWM or RWM, the inverse ETFs for the Russell 2K. All I’m doing is looking for an oversold 2-period RSI on the shorter-term bars, like the 15s or the 30s. I just don’t want to pay too much for the shares.
Gold and mining stocks had another positive day. GLD rose .29 cents to 118.83. The 50 continues to move up and is getting closer to the 200, setting the stage for a cross of the moving averages. The VTI on GLD continues to move up and is now at 61.1. A VTI reading above 70 would put GLD in the Uptrend Mode. The fly in the ointment now is the 2-period RSI. At 98.8, the RSI is EXTREMELY overbought without a Trend in place, so GLD could pull back or trade sideways for a few days before starting to trend. I would view any pullbacks now as buying opportunities.
That’s what I’m doing,
h
BTW, the House votes on the health care bill today. If the bill is defeated, it could impact markets negatively as investor confidence in President Trump and Congress will start to erode. Remember, the rally since early November was built on promises for lower taxes, Health Care reform, and a wall. If tax reform is delayed until next year, and the House can’t produce a new Health Care bill, it will start to change the sentiment of many investors.
Market Signals for
03-23-2017
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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Category: Professor's Comments