Weekend Strategy Review March 22, 2014

Posted by OMS  at March 23rd, 2014

On Friday, the Dow rose over 125 points early, only to give it all back by the close.  It finished the day down 33 points at 16,298.  The index was up 233 points for the week.

On the other hand, the tech heavy Nasdaq was down a whopping 42 points on Friday, and was only up 32 points for the week.  The decline caused the DMI on the QQQ to turn negative.  It also caused QID, the inverse NASDAQ ETF, to appear on the Dean’s List.

So once again, we have mixed signals between markets.  For the past several weeks, I have been talking about the negative and diverging P-volume on the NASDAQ and how it continues to provide us with a warning.

At this point, it’s still too early to tell which one of my two scenarios will determine the next major move in the market, and  Friday’s intraday rally and subsequent decline only served to confuse the issue.  Here’s why:

Friday’s rally in the Dow took the index to 16,456. This is only 132 points from the maximum projected target for my ‘under 16,588’ wave 2 scenario.  In other words, the rally, likely caused by Thursday’s small change in the A-D oscillator, could have been the top of wave 2.

It could be the top, but at this point, it’s still not likely.  Friday’s internals were way too strong to suggest a top, so I still must favor the scenario that suggests the markets will trade higher. On the other hand, Friday’s trading action tells me that the consolidation-correction period after the Fed announcement is still not complete yet and we could see lower prices in the short term. 

This is one of the reasons that I have only been trading energy issues lately, choosing to wait for a Buy Signal from The Professor before committing the rest of my funds to the markets.  With DIG, PXE and USO near the top of the Dean’s List,  I feel very comfortable holding energy going into April.

Just about all of my energy related issues had a nice day on Friday.  HAL finished the day up 0.70, GPOR finished up 0.80, after being up over 1.50 at one point.  Schlumberger, SLB, finished up 1.56 and looks like it wants to test its old high.  I bought a few shares of Marathon Oil, MRO, on Friday as a trade after I saw a signal that suggests a trend could be starting.

BTW, it’s a long shot, but IF the White House starts to view U.S. energy exports as a long-term way to help lessen European reliance on Russian gas, we could see a major rally in these issues.

At this point, the Dean’s List remains positive, but the money flowing into the markets from the institutions is weak. This is causing mixed signals in my sector analysis.  Right now, exactly half the sectors I monitor are in Uptrends with the other half showing down trends.  So until this inter-sector conflict is resolved, we won’t see a strong trend develop in the markets.  This is also what is keeping The Professor from issuing a clear Buy Signal.

So all I’m doing now is waiting.  The Financial Sector had a strong showing after the Fed announcement, and when this happens, the market usually pulls back for a few days before heading higher.  Like I mentioned yesterday, traders are still trying to digest what the Fed announcement really means.  And as we saw Friday, while the Financials broke out of the gate quickly, the rest of the market was not as enthusiastic.  After seeing Friday’s pullback, it’s likely that any future sustained move to the upside will only take place IF the Financials can convince the Techs that the Fed Juice will not only be good for them, but good for the rest of the economy as well.  And right now, this is not happening.

Gold appears to be topping, but as of Friday, the PT indicators remain Green.  I’m still not ready to short gold yet, but if the indicators turn negative next week, I’ll start putting on a few trial positions.

So my Big Picture Strategy for this weekend is …just waiting.  I’m still about 60-65 percent invested, mostly in energy.

Have a great weekend.

That’s what I’m doing,

h

FAQ

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.