Professor’s Comments March 28, 2019

Posted by OMS  at March 28th, 2019

The markets had another choppy session yesterday.  After a brief opening rally that took to Dow to the 25,758 level, the Dow proceeded to drop over 400 points to 25,432 before rallying into the close to finish down just 32 points at 25,626.  Hmmm?  And you wonder why the Model is mostly in cash at this point?  This market has absolutely no idea of where it wants to go.  Like I said yesterday, the odds remain about 50-50 with respect to the next directional trend, so until my market timing signals are resolved one way or the other, I’m very comfortable being mostly on the sidelines.  The NASDAQ and the SPX finished down 48 and 13 points, respectively

Volume on the NYSE was moderate, coming in at 93 percent of its 10-day moving average. There were 143 new highs and 33 new lows.  New highs have been outnumbering new lows recently, which is an indication the market wants to move higher.  However, it still appears that any move to the upside will be limited to about the 25,850 level until the current triangle completes.  Downside risk within the triangle is still near the 25,370 level.  A break below 25,370 will likely negate the Bullish triangle scenario and bring a large Bearish triangle into play.  Under this scenario, the Dow could decline to the 24,500 level or lower, before rising in the next rally leg.  So, 25,370 is still a key level to watch.  

BTW, the chaos on the U.K’s plan for Brexit drags on.  Yesterday, all nine plans for an orderly Brexit were defeated, so unless something happens between now and 22 May, the new date for Brexit, the U.K will leave the EU without an exit strategy. The previous date for Brexit of 29 March was scrapped during yesterday’s session. Nobody knows how this will impact the equity markets or the Pound. However, I’m starting to see some of this uncertainty show up in a stronger Dollar which in turn is putting pressure on gold.  It’s just another reason why I’m comfortable being on the sidelines for now.  

BTW, on 26 February when the Model was started, the SPX was trading at 2,794.  Yesterday it closed at 2,805.  So, for the past month, the broad based S&P500 has gone nowhere.  All we’ve had is a lot of volatility, something that drives traders nuts!

Anyhow, there were no changes to my market timing indicators for equities after yesterday’s volatile session. The Dow (DIA), SPX (SPY) and Russell 2K remain on Neutral Signals. The NASDAQ-100 (QQQ) remains on a Buy Signal.  So, at this point, my market timing signals for equities are still mixed.  Gold moved to a Neutral Signal from a Buy after yesterday’s session.

The Tide and the Dean’s List are both Neutral.

The Sector Ratio stayed at 18-5 positive after yesterday’s session.    The Strong List continues to be led by Household Products, Semiconductors, Utilities, Computers and Technology.  The Weak Sectors are Banks, Media, Food Drug, Consumer Products and Leisure.

BTW, after yesterday’s session, nine of the Sectors on the Strong List had RS ratings of 1 or zero.  This tells me that even though the Sector Ratio stayed at 18-5 positive, it could still easily turn negative if the market begins to pullback.  In other words, even though the Sector Ratio is 18-5 positive, with so many sectors showing low RS Ratings, the Strong List is not as strong as it appears.

Gold and mining stocks fell yesterday. GLD dropped another 0.65 cents to 123.65.  Gold could be starting its wave ’c’ down within Wave 2 down.  If this is the case, gold (the metal) could decline to the 1250 level before wave ‘c’ down completes.  This would mean that GLD could trade back down to the 120 level.  At this point, I’m not too anxious to trade gold to the downside.  I’d rather use any pullback to begin establishing a position in gold, as the charts suggest gold is going a lot higher once the pullback completes.  Gold shares could be a nice place to be a few months from now.

Crude Oil fell yesterday as the upside momentum and money flow appear to be shifting.  Crude Oil appears to be developing a large consolidation triangle which will likely limit its upside potential for the next few weeks. I still would feel much better about Crude Oil if it were to move above the 200, now at 22.59.  Until this happens, the pattern for Crude Oil remains unclear.

Model Portfolio: With no clear patterns and mixed signals on the cockpit, the Model sold its position in DXD and TZA just after yesterday’s open. The Model continues to hold a half position (645 shares) in SKF, the 2X inverse Banking ETF as the Banking Sector continues to lead the Weak Sector List.

The remainder of the theoretical $100,000 portfolio, $89,460.58, remains in cash. The Model is currently showing a gain of $2,296.58 without commissions, or an IRR of 2.22 percent vs. 0.33 percent for the SPX.  

BTW, yesterday’s Treynor Ratio for the Model Portfolio was 14.83.  The Treynor Ratio is a risk-adjusted measurement of return.  The number gives you a felling for how much return a portfolio generates for risk assumed.  This is something I’m monitoring closely because the Model Portfolio is using leveraged ETFs to produce its returns.

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

03-28-2019

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