Weekend Strategy Review April 15, 2018

Posted by OMS  at April 15th, 2018

The markets closed the week on the downside.  The Dow fell 123 points, closing at 24,360.  It was up 427 points for the week.  The NASDAQ was down 34 points on Friday, but up 101 points for the week.  The extreme volatility we’ve been seeing did not do anything to change the patterns.  The Dow is still trapped between its 50 and 200-day moving average, and until it closes below 23,500 or above 24,550, the choppy trading will likely continue.

One positive thing did occur this week. My combination VTI-volume indicator on the Weekly Dow Chart turned positive.  This indicator had been negative since mid-March.  But now it’s back to positive again. So, IF the Dow can rally and close above 24,550, we could see wave ‘c’ up of the zig-zag pattern for Major Wave 2 up take the Dow to the 25,500+ level before Major Wave 3 down begins.  That would be nice as it would give traders another opportunity to exit stocks before the next leg of the Bear Market begins to unfold.

Last night, President Trump announced another air strike against Syria.  Apparently, the strike consisted of more than 100 cruise missiles launched from various platforms.  Hmmm?  I’m not going to say anything about this air strike other than the fact that each cruise missile cost $1.87 million.  So, if we launched 100 missiles at Syria, the cost of the raid was at least $187 million.  Just what we need when the U.S Treasury now projects the annual deficit will near $833 billion, and then $984 billion in fiscal 2019.  It was less than a year ago the CBO was projecting deficits wouldn’t cross the $1 trillion threshold until 2022. 

While I was listening to the President’s briefing last night, I also looked at Raytheon (RTN), the company that makes the cruise missile.  Having worked in the Pentagon for years, I know these 100 missiles will need to be replaced, even though they might not have been budgeted for.  The planners will simply take money out of other programs to buy missiles. Trust me, I saw my budget in the P-3C reduced many times to pay for things like this.  Anyhow, when I looked at RTN’s chart, I saw a thing of beauty.  The stock is in a well-defined uptrend with almost perfect railroad tracks for moving averages.  It’s VTI-volume indicator is EXTREMELY positive, with the VTI in the UP-Trend Mode.  The Weekly chart shows the same thing.  The Monthly Chart is also EXTREMELY positive!! The VTI on the monthly chart went positive on 29 February 2012 with the stock at 50.52 and has remained positive ever since.  Now Raytheon is trading at 222.  So, it appears that the missile business is good and with a back order of 100+ missiles, could be getting better.

That’s OK.  I’d still rather see the government spent that $187 million on bridges, roads, hospitals, schools, etc. instead of an air strike.  But that’s just me.  I don’t want to leave my grand kids with a $20+ Trillion debt that continues to grow.  And I don’t want my grand kids to have to rely on China to buy our bonds to finance this debt.  One day, they’re gonna look at the financial mess we created and ask …Why?  I’m guess I’m going to have to tell them the truth.  We thought it was a good idea to borrow money from China to build missiles to bomb Syria.  Seemed like a good idea at the time.

The Sector Ratio slipped to 21-3 negative after Friday’s Trading.  The three Strong Sectors were Energy, Household Products, and Consumer Products.  The Weak Sector List was led by Real Estate, Food Drugs, Specialty Banks, Retail, and Autos.  Continue to avoid the Weak Sectors like the plague. 

I found it interesting that even though Raytheon’s chart is a thing of beauty, the Cap Equipment Sector, which consists of several groups besides Aerospace, is still in the middle of the pack on the Weak List.  So even though the defense business is strong, other groups within the Sector, like industrial and farm equipment, building products and electrical equipment manufacturers are suffering, pulling the sector down.  Goes back to what I said earlier about robbing Peter to pay Paul.  You can’t have guns and butter at the same time.  The Russians tried it in Afghanistan.  They went broke.  It caused the eventual demise of the Soviet Union.  Apparently our leaders didn’t learn anything from the Soviet experience.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

04-16-2018

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