Weekend Strategy Review May 7, 2016

Posted by OMS  at May 7th, 2016

The Dow rose 80 points on Friday, closing at 17,741.   It was down 33 points for the week.  The NASDAQ was up 19 points on Friday and down 39 points for the week.

Friday’s Jobs Report was horrible.  Analyst expected a gain of 203,000 new jobs.  They got 160,000.  Un-employment remained flat at 5%, but more people dropped out of the labor force and the so-called participation rate fell for the first time in seven months. It means that Americans are still having a hard time finding a job, especially one that pays a decent wage.  And with the U.S. economy only growing at 0.05 percent, the slowest rate in two years, it’s likely this trend of poor Job Reports will continue.

It’s also something to think about the next time you hear someone in the media talking about bathrooms in North Carolina, or some other distraction during this election cycle.  No!  There’s only one thing we as a nation should be focusing on.  It’s the economy and jobs.  Unless the economy improves, everything that we stand for as a nation will suffer.  It’s pretty simple really: an improving economy creates wealth.  The additional money pays for things like social security, heath care, and the military.  If the economy goes into recession and people start getting laid off, less money will be available to pay for the things we need.  And right now, with a 0.05 percent growth rate that is trending down, we’re getting pretty close to negative numbers which would signal the country is in recession. That’s what Friday’s Jobs report really says.

Anyhow, the poor jobs report resulted in another choppy trading session.  After an initial decline, traders appeared to shrug-off the report and the market staged a late day rally. This is what happens when the market enters the day in an oversold condition without a trend in place.  It’s also the reason why I want to talk about trends this weekend.

There’s an old saying in the market that the trend is your friend.  The saying has been around so long that most people ignore it.  Yeah, they know it makes sense, but they still ignore it.  It’s like all the people who will be going to Churchill Downs today to watch the Kentucky Derby.  They spent a lot of time and money getting to the race, so they feel that they have to place a bet.  Most of them will either bet the favorite, or put money on a long shot.  Neither is really a good bet.  The favorite will likely be over priced and long shots have little chance of winning.  But they already have so much invested that the ‘real’ odds don’t really matter to them.  They’re gonna bet anyway.

Same for the stock market.  Without a solid trend in place, the odds of a winning bet are poor. 

For example, on 16 February, when The Tide turned positive, the odds for a winning bet on the stock market were extremely high.  My custom Volume Trend Indicator (VTI) turned positive a few days later, with the Dow was entering the Trend Mode on 4 March.  The Tide turn led to a 2,000 point rally in the Dow.

A similar thing happened in early January, only this time an outgoing Tide led to a 1,400 point decline. 

On 31 December 2015, the Dow closed at 17,425.  Yesterday it closed at 17,740.  So in five months of 2016, the Dow is up 300 points.  Not much for a buy and hold investor.  On the other hand, a trader who was following The Tide could have participated in trades that were worth over 3,000 Dow points.  Ten times the amount of the buy and hold investor!

But right now, The Tide is still neutral.  And there is still no trend in place.  Take a look at the charts I posited that show The Tide and the trend. Then decide for yourself if you still want to place a bet on this market.

It’s the reason I’m still being patient.

Have a great weekend.

That’s what I’m doing.

h

Market Signals for

05-09-2016

FAQ

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