Weekend Strategy Review December 6, 2015
Posted by OMS at December 6th, 2015
The Dow rose 370 points on Friday, closing at 17,848. It was up 49 points for the week. The NASDAQ was up 105 points on Friday and up 15 points for the week.
Last week, I talked about how the market would likely ‘chop’ higher toward 18,350+. But to tell the truth, I did not expect moves of +79, +168,-159, -252 and +370. That’s four moves of over 150 Dow points in the same week! Pretty incredible.
What does all the does this volatility mean? Is the market trying to tell us something?
I believe it is. But the tell is not in the volatility, it’s in the breadth. The breadth is the real tell. Even though the Dow rallied for 370 points on Friday, the number of new lows was greater on Friday than what occurred on Thursday when the Dow dropped 252 points.
On Thursday there were 39 new highs and 168 new lows. On Friday, even with a 370 gain, there were 44 new highs and a whopping 198 new lows. That’s telling! The divergence is a clear indication that a lot of stocks did not participate in Friday’s rally. This is what usually happens when the market starts to approach an important top.
The Dean’s List remains positive, but The Tide is still negative.
So for this weekend, I’m going to stick with my previous forecast of a choppy market moving toward 18,350+ into year’s end. As long as the Dow remains above 17,250, the Five Wave to a Top Scenario will remain my #1 Scenario.
Friday’s rally appeared to be the start of wave 3 up of a five wave sequence toward 18,350+. This rally should continue with the next leg taking the Dow close to the 18,100 level. After this, there should be a small pullback for wave 4, followed by a final thrust to retest the May highs near 18,350, possibly a bit higher.
If you’re trading the current market, you might want to pay close attention to the breadth and Money Flow indicators on any move above 18,000. When I say breadth, I mean The Tide. It’s the best indication of breadth I know. If the Dow is above 18,000 and The Tide is neutral or negative, I will start managing my money.
Same for the Money Flow. I don’t want to be holding a lot of stock above 18,000 if it is not supported by the Money Flow indicators. Right now the Coach, my primary Money Flow indicator for the QQQ, is positive. But it’s negative on the Dow (DIA).
So the cockpit indicators are mixed. When the indicators are mixed, we always need to trade with caution. Mixed indicators, especially when the pattern is approaching an important top, usually tell us that the market is getting ready to change direction.
Another market that appears to be in the process of changing direction is gold. If you recall, several weeks back I said that gold would likely need another leg down before completing its multi-year wave 4 decline. This decline appears to be nearing completion. On Friday, GDX rose 0.75 to 14.83. The DMI is now positive and the Bollinger Bands have narrowed. This puts the ETF in a strong position for a re-test of the 200-day moving average currently located at the 16.46 level. But here’s the thing. IF gold has not bottomed, then GLD, the ETF for physical gold, should rally to about 107 before starting another leg down to re-test the 100 level. If this re-test occurs, GLD should bottom below 100, probably closer to 95-96.
So if you’re looking to trade gold now, you might want to pay close attention to the indicators on any rally. Remember, gold is still in a down trend, so any positions must be kept small. Trial or speculative positions only!.
CORN and DBA are also new additions to the Dean’s List. Anytime I see the ags on the Dean’s List, I pay attention. They always tell me when the weather conditions in the mid-west are causing concern for the farmers. The DMI on both ETFs have turned positive with narrow Bands. Interesting, but trades only! Both ETFs are still in down trends.
Also DUG, the inverse ETF for energy has moved to the top of the Dean’s List. Last week I mentioned how I was watching my ‘Sticks in the Sand’ for energy as the calendar was approaching the new year. So with DUG on the List now, I’m just waiting.
One of the stocks in the energy sector that I’m watching with great interest is Kinder Morgan (KMI). The stock dropped 2.44 points to 16.82 on Friday as energy stocks got slammed. Kinder Morgan owns and/or operates numerous energy-producing or stage facilities, petroleum pipelines and more. I especially like their pipeline business.
Seems to me that no matter what happens to the price of oil, it still has to be stored and moved. And the best way to move oil across the country is in a pipeline. Further, if the price continues to decline, people will likely be using more oil, not less. And the distributors who rent space in the pipeline and the tanks will continue to pay the rent. Pipelines and storage tanks are NOT going away anytime soon.
So right now with KMI trading below 20, there seems to be a lot of concern about its ability to pay the high dividend which on Friday was over 10.5 percent. And if the dividend can’t be paid, KMI is probably not a $20 stock. At least this is the current thinking.
On the other hand, KMI traded to a high of 44.71 during the energy rally last April. So IF…and it’s a BIG IF, KMI starts to stabilize near 20, AND DIG replaces DUG on the Dean’s List…AND the calendar stats moving closer to March…I’m very interested.
Have a great weekend.
That’s what I’m doing,
h
Market Signals for
12-07-2015
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEG |
SUM IND | NEG |
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.
Category: Professor's Comments, Weekend Strategy Review