Weekend Strategy Review March 29, 2014

Posted by OMS  at March 30th, 2014

The Dow rose 59 points on Friday, closing at 16,323.  It was up 25 points for the week.  The OTC market was up 4 points on Friday, closing 4,155.  It was down over 121 points for the week.  It was a tough week for technology and biotech.

It still appears that the markets are trapped in a consolidation area as traders continue to try look for consensus about the next major directional move in the markets.  I have included a chart of the Dow in this week’s WSR that depicts this consolidation area, which has now formed the ‘Blade’ of our Hockey Stick Pattern.  If I’m right about the pattern, the Dow should start to break out of its ‘Blade’ in the days ahead and start a move toward the 17,000+ level during the next month to six weeks.

On Friday, the DMI on the Dow (DIA) turned positive.  However the DMI on the NASDAQ (QQQ) remains negative.  So we have mixed indicators.

When I saw the intraday turn of the DMI, I started to run The Professor to see if he was going to confirm the change as the start of a new uptrend.  He didn’t.  He was only seeing 21 longs, which is not enough to generate a new trend signal.  On Friday, the Dow got as high as 16,414 which is pretty close to the area where I expected resistance to come in.  So because it didn’t break through resistance on this rally, it’s likely that the markets will spend another day or two pulling back to gather the strength to make another run at 16,450.  I believe that this is what was behind the pullback we saw on Friday afternoon.

Friday was a good day for energy stocks, as most of them were among the leaders of the early morning rally.  If you look at the Member’s Watch List, about 75 percent of the top 25 spots are related to energy.  I received several emails from students on Friday telling me how much fun they were having trading energy.  I loved the feedback!

However I do want to take a moment to remind you about how we started to identify some of these energy issues.  Remember, we began the process by seeing several energy ETFs start to appear on the Dean’s List.  ETFs like DIG, OIH, and PXE.  So we knew that something was happening in energy, especially in the energy service sector.  So then we looked for stocks from this sector and found several like HAL,SLB, GPOR and others on the MWL.  All of them had nice Hockey Stick Patterns.  We waited for the PT indicators turn positive, or we bought them ‘On-Sale’ when the 2-period RSI Wilder became oversold. And now, we have seen them advance producing nice profits.  But we know that energy is only one sector, and IF the overall market starts to move up, as I expect, other sectors will start to strengthen and take their turn in the move.  As energy starts to move higher and becomes overbought, money will start to leave the sector and find its way into other groups or sectors.  The key in the weeks ahead will be to find which of these sectors or groups will start receiving that money.

Looking at Friday’s action, the sector with largest change in strength was Healthcare Equipment and Services.  Stocks in this sector include BCR, BDX, BSX and MDT.  All of the stocks mentioned have pretty much the same pattern.  They all have been trapped in a sideways consolidation that has developed into a very nice Hockey Stick Pattern.

When I checked the Member’s Watch List, I noticed that none of the stocks mentioned were on any of my the Lists, which caused me to wonder why?  So I checked to see if any of them were in the database. None were.  So I added Medtronic, MDT to the MWL.

Then when I re-ran the List this morning, I noticed that MDT was on the List about half way up with a RS Rating of 1.  I’m sure that IF I added the other stocks to the data base, they would be there too, because all have similar patterns.

Right now, most of the sectors that I monitor are still in downtrends, and this includes Healthcare.  However just like we saw happen with HAL and the turn around in energy, you have to start somewhere.  And Friday’s clear show of strength in Healthcare might be the start of the next move up in that sector.

So as we move into next week, I will continue to watch the markets for a breakout.  I will be looking for The Professor to give his ‘all clear’ signal and once I see this, I will start buying stocks from the strongest sectors on the Lists.  Just like I discussed above.

That’s my Big Picture Strategy for this weekend.  I’m looking to buy additional shares to ride.

Have a great weekend.  That’s what I’m doing.

h

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