Weekend Strategy Review December 30, 2018

Posted by OMS  at December 30th, 2018

The markets rallied early on Friday, with the Dow gaining 243 points to 23,382 before pulling back to close down 76 at 23,062.  In Friday’s early comments, I mentioned the Dow could approach the 23,400 level before the next down wave began. So, after coming within 18 points of my target for sub-wave 2 up, the question is was Friday’s late decline the start of the next wave down?  I suppose we’ll know for sure early next week.

Friday’s early rally and late decline looked an awful lot like what I would expect to see in a corrective sub-wave within a major Wave 3 decline.  Earlier in the week, three out of the five days had been 90 percent down volume days, which are usually found near short-term bottoms.  So, the thousand point rally that occurred the day after Christmas appeared to be an oversized relief rally.  Nothing more.  And given that the rally lasted two additional days, by Friday it had formed the ‘Blade’ of a negative Hockey Stick Pattern.

This means that once the Hockey Stick pattern completes, the next wave down should equal the ‘Stick’ portion of the pattern which in this case is 3,165 points.  So, subtracting 3,165 from Friday’s high of 23,382 puts my next target near 20,217.  Ouch!  This is why I decided to post the early comments on Friday.  The next wave down could be significant.

Bear Markets almost always test their 200-week moving average which is currently located at 21,366 on the Weekly chart of the Dow.  So as a minimum, I would expect the Dow to decline to that level.  And if the 200-week moving average is broken, students should realize that there isn’t any real support until about the 18,000 level.

One of the reasons a decline of this magnitude could happen is because of all the uncertainty that currently exists in the markets now.  The government is shut down, the leaders don’t appear concerned about it and the President is issuing ultimatums to either fund the wall or he’ll shut down the southern border. Ultimatums and uncertainty are never good things for the markets.  They are exactly the kind of things that can kick off an impulsive down wave within a Major Wave 3 down.

All my market timing indicators for equities remain on Sell Signals.  The Sell Signals are present on both the Daily and Weekly charts.  Students should also note that the 50-day moving average is now below the 200 on the Daily charts of all the major U.S. indexes.  This means the indexes are all in down trends.  The indicators are telling me we’re in a Bear Market that will likely continue to move lower.

The Sector Ratio remains at 0-24 negative after Friday’s session.  So, with all 24 Sectors in the S&P500 still negative, the Ratio continues to tell us to stay out of the markets.  I did note that the Materials Sector had a large Delta Trend Score (+116) on Friday, so maybe something is getting ready to happen with gold.  The Materials Sector is the sector that contains gold and the miners.   The Sector is still weak, but gold is the strongest group within the Materials Sector.  Remember, my VTI-volume indicator for gold is on a Buy Signal, so gold should add strength to the sector.

I’m also starting to see some money flowing into Crude Oil.  I’m still on a Sell Signal for Crude Oil, but seeing a positive Money Flow indicator is encouraging.  Be patient.

Have a great weekend and continue to enjoy the Holiday Season.

That’s what I’m doing,

h

The markets will be closed on Tuesday for the New Year Holiday.

Market Signals for

12-31-2018

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