Weekend Strategy Review April 29, 2018

Posted by OMS  at April 29th, 2018

The markets finished flat on Friday.  The Dow was down 11 points, closing at 24,311.  It was down 151 points for the week.  The NASDAQ was up 1 point on Friday, but down 26 points for the week. 

Friday’s small decline appeared to be part of sub-wave ‘c’ down within Wave ‘e’ down of the large triangle pattern for Major Wave 4.  If this is the case, the markets should begin to rally to new highs once Wave ‘e’ down of Major Wave 4 down completes.

Sub-wave ‘c’ down should end somewhere between 23,500-23,800.  The final leg of a sideways Bullish triangle usually does not get as low as the previous lows.  Also, the slope of the final wave is usually much shallower than slopes of the previous declines, and that’s what we’re seeing now.  In other words, I wouldn’t get too negative.

From an indicator perspective, the 2-period RSI on the Dow closed with a reading of 68.6.  So the Dow is still slightly overbought with NO TREND in place.  The overbought RSI will make it easier for the market to decline early next week. However The Tide turned positive on Friday, so the breadth indicators are starting to show some strength.  I think this strength reflected the earnings that came out this week, which were mostly positive.  Amazon (AMZN) had a blow-out quarter and rose nearly 100 points after its earnings were announced.  I view AMZN as a bell weather stock for the health of the overall economy.  BTW, the 2-period RSI on AMZN finished with an overbought reading of 90.6, so the stock is overbought with NO TREND in place.  With readings like this, I would expect the stock to pull back a bit.  This is another reason why I believe we could see slightly lower prices by late next week.

From a strategy perspective, here’s the deal:  As long as the Dow holds above the 23,500 level, I would view any dips between 23,500 and 23,800 as a buying opportunity.  This could be a Major Buying Opportunity, similar to the one we had just before the November 2016 election. Be prepared and watch the indicators.

Energy remains at the top of the Strong Sector List, with DIG on the Dean’s List.  Chevron (CVX) rose 2.4 points on Friday.  The stock is now up over 7 points since its 35-period CCI entered the Trend Mode on 10 April.  The 2-period RSI on CVX is currently oversold at 95, so it could pull back with the market.  But with the stock in an Up Trend, (50 above the 200), any pull back should continue to be viewed as a Rifle Trading opportunity.  As long as the CCI remains in the Trend Mode, keep your finger off the Sell button.

BTW, have you been paying attention to what’s been happening with the Sector List lately?  Hmmm?  If you did, even though the overall market has trades sideways since early February, there were several sectors that made nice moves.  For example, on the positive side, Energy has produced several nice winners recently.  Same for most technology stocks in February when they were at the top of the Strong List.  On the downside, Autos and Real Estate have been at the top of the Weak List for months.  If you owned stocks in these sectors, odds are that you got hammered. 

The reason I mention this today is because IF the market starts to move lower next week to complete sub-wave ’c’ down of Wave ‘e’ down, you might want to pay attention to which sectors are at the top of the Strong Sector List.  I believe that once Wave ‘e’ down completes, it will be these sectors that will lead the market higher.

I also believe that once Wave ‘e’ down completes, the Sector Ratio will start to increase. On Friday, the Sector Ratio stood at 11-13 negative, which is where I would expect it to be in a non-trending market.  The thing you want to watch for is a Ratio approaching 18-6 positive. That would tell me that more and more Sectors are starting to trend higher.  Then IF I’m right, the Ratio should improve to better than 20-4 positive. This would be an indication that the rally is underway.  So, watch the List and use it to help pick the horses (stocks and ETFs) you want to ride in the next rally.

On Friday, the Strongest Sectors were Energy, Utilities, Healthcare, Leisure, and Telecoms.  The Weakest Sectors were the Semis, Household Products, Autos, Real Estate, and Transportation.

Remember, The Tide has turned positive.  This is the event that causes me to start looking at the long side.  With a positive Tide, I start using the Sector List to help select ETFs and stocks from the Dean’s List and Member’s Watch List.  Then when the indicators turn positive, or the 2-period RSI shows an opportunity for a Rifle Trade, I pull the trigger.  I’ll talk more about which stocks I’m looking to buy next week, especially if the Dow pulls back (and stays above 23,500).  If it drops below 23,500, all Bullish bets are off.

Have a great weekend.

That’s what I’m doing.

h

BTW, there was another small change in the A-D oscillator on Friday, so we need to be on the lookout for a Big Move early next week.

Market Signals for

04-28-2018

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