Weekend Strategy Review December 2, 2018

Posted by OMS  at December 2nd, 2018

The markets rallied hard on Friday.  The Dow finished 199 points higher, closing at 25,538. It was up 1,257 points for the week, erasing all the previous week’s 1,127 point decline. The NASDAQ was up 57 points on Friday, and up 392 points for the week.  The Dow and NASDAQ remain on long-term Weekly Sell Signals.

There were 57 new highs and 259 new lows on Friday, even though the Dow rose 199 points. The high number of new lows at this point in the retracement pattern remains a bearish sign. It tells me the current rally is likely wave ‘c’ up within an a-b-c- pattern for Wave 2 up.  Once this retracement wave completes, probably somewhere near 26,300+, Wave 3 down should begin. Students should understand that even though the current rally could retrace a good part of the October decline, it is NOT the start of a new phase of the old Bull Market.  Until proven otherwise, the wave count suggests we’re still in a Bear Market.

Yesterday’s rally was the Big Move predicted by the ‘relatively’ small change signal in the A-D oscillator.  The rally produced a nice ‘Cigar Day’ for me.

In Friday’s Comments, I wrote about how effective this small change signal was in predicting 100-point plus moves in the Dow.  Yesterday’s early dip gave me an excellent opportunity to establish a few long positions, making the day even better than a ‘normal’ Big Move day.

Going into yesterday, given the small change signal from the A-D oscillator and the fact that my market timing signals for equities had both turned positive, I was looking to get long.  I simply followed the procedure I outlined for students in my Class About Nothing.

I simply looked at the cockpit indicators for equities.  Seeing the signals for the Dow and NASDAQ were both Green, I knew I had to be long.  I then looked at the Strong Sector List, and even though only two sectors (Household Products and Media) were showing strength, I knew that stocks from both sectors were well represented in the Dow.  If technology stocks were among the strong sectors, I would have chosen a NASDAQ vehicle, like QLD, to trade, but they weren’t.  So, I decided on UDOW, which is a highly leveraged ETF that goes up 3 percent for every one percent move in the Dow.  I like to use leveraged ETFs when I’m scalp treading because they move.  Also, give that the G-20 Meeting in Buenos Aires is this weekend, I knew I didn’t want to be holding stocks over the weekend because you never know how these meetings will turn out.  If the results are positive, they can lead to a 1,000 point move in the Dow.  On the other hand, IF the results disappoint, they could start a major decline.  With an even odds outcome, I decided to let the market tell me what it wanted to do before I established major positions.

So, scalp trades were the order of the day for Friday.  If you recall, I also mentioned that I was looking to trade Intel (INTC) and computer stocks on Friday.  The reason for this was their patterns and the fact that one of my algorithms identified them as ready to pop.  Like I said on Friday, INTC has been hit hard by the trade war with China, and an agreement could do wonders for the stock.  Besides, if you look at a Daily Chart of INTC, you can see a well-defined Three Lows to a Bottom (TLB) Pattern and a nice Bollinger Band Squeeze.  So, I added INTC to my trade list for the day.

Now that I had identified my trading vehicles, all I needed was to identify the entry points.  Remember, I was NOT afraid to take positions early because my market timing indicators had just tuned positive.  And Thursday’s day of rest had produced a nice short-term Hockey Stick Pattern on the Dow and INTC (look at the 15 min chart of INTC). So, I was ready!

For UDOW, I had to wait until 13:25 before the CCI and VZO lined up giving me the all clear sign.  Once into the trade, I held it until just before the close.  If you look at a 5 min chart of UDOW, you will see where I exited the trade at 15:50 when the CCI dipped below the +100 level.  Remember that even though I fully intended to exit the position by the close, there is NEVER a good reason to hold a leveraged ETF like UDOW when its not trending.  NEVER!  Bad things can happen with these highly leveraged vehicles, and they can go south quickly.

Intel was a slightly different story.  After an initial dip on the 5s, the CCI turned positive at 10:00 so I entered the trade.  This was an easy trade to make as the CCI stayed positive, except for a small dip at 13:15, for the entire day.  There was no reason to sell at 13:15 because the VZO stayed positive.  Again, fearing the G-20 Meeting, I exited the trade just before the close.   

If you get a chance during the weekend, please take a quick look at both these trades. You can learn a lot about scalp trading Big Moves from these examples.  Start by recognizing the fact that we used the A-D oscillator to identify the fact that a Big Move was coming.  Then how I used the cockpit indicators to tell me the direction to trade (long) and help select the trading vehicle (UDOW).  Then finally, how I used patience and waited until 13:25 before the indicators turned positive.

I usually use the WSR to discuss longer-term strategy. But when I see how effective trading Big Move signals from the A-D oscillator are at producing ‘Cigar Days’, I really want you to understand the importance of these signals and how to trade them. 

By sharing the mechanics of these trades with you, I hope that the next time I mention that we have a small change signal on the Board, you too will have your ’Cigar Day’. 

ALSO, the Sector Ratio rose to 9-15 negative after Friday’s session.  Guess what appeared on the Strong List.  Hmmm?  Semiconductors!  It was the number 2 sector behind Household Products.  Also, at the top of the Strong List were Service, PharmaBio, Media and Telecoms.  BTW, just as important is the fact that sectors like Computers, Financials, Banks, Insurance, and Utilities saw their Relative Strength Rating on the Weak List drop to zero, which means they are getting stronger.  Don’t be surprised to see these sectors move to the Strong List early next week.

BTW, the same one that identified INTC yesterday, highlighted BAC, ED, CNI, JCI, T, and IBKR last night as possible longs. Several if these are from improving Weak Sectors that could start to appear on the Strong Sector List.  None of the stocks listed are recommendations.  I don’t make recommendations, but I do trade the stocks I talk about.

Have a great weekend,

That’s what I’m doing,

h

Market Signals for

11-03-2018

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All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.