Weekend Strategy Review October 21, 2018

Posted by OMS  at October 21st, 2018

The markets opened higher on Friday but could not hold their gains. Once again, the markets had another choppy intraday trading session that appeared more corrective than impulsive.  This tells me the early bounce to 25,609 on the Dow was likely part of wave ‘c’ up within Wave 2 up. If this is the case, Wave 2 up should complete near the 25,850-25,900 level within the next 12 trading days.  Once Wave 2 up completes, the markets should begin a significant decline as Wave 3 down of Major Wave 1 down begins to unfold.  By the time all five waves of Major Wave 1 down are complete, the Dow should be trading near or below the 24,000 level.

The Dow was up 65 points on Friday.  It was up 104 points for the week.  The NASDAQ was down 36 points on Friday and down 48 points for the week.

The Sector Ratio remained at 3-21 negative after Friday’s session.  Media, Utilities, and Telecoms were the only sectors on the Strong List.  I can’t get excited about trading anything to the long side, except for gold.  Remember that in Friday’s Comments, I talked about how the Dow would likely bounce in choppy trading, but the risk-reward ratio after the bounce was EXTREMELY unfavorable for me to trade the long side.  I still fell that way.  I would rather let the markets chop higher and look to fade the rallies, mostly because my key equity market timing indicators are all Red.  My market timing indicator for gold and mining stocks remains Green.  So, Friday, I was trading NUGT while watching the equity markets from the sidelines.  It was a great strategy.

Here’s the thing:  Trading the equity markets now is too much like work.  You must watch your positions all the time. One minute they’re up, the next minute they’re down.  That’s what happens when the market is undergoing a corrective wave 2.  And if you don’t watch your positions, it can be costly.  On the other hand, gold is a much easier trade.  It’s on a Green signal.  Green is my favorite color. I love Green!  Green makes my life easy. That’s because when I look at the Green Signal on gold, I know I can use my 2-period RSI to identify stocks or ETEs in that sector when they are on sale.  And when you don’t overpay for a stock, it usually increases the odds that the stock will move higher.  It’s a very simple strategy and it works!

You could have done the same thing with Bonds for the past month.  My market timing indicator for Bonds has been Red since 5 September.  So instead of fighting the equity markets as they develop the initial waves of the next Bear Market, you could have either shorted Bonds or bought TBT, the inverse 20+ year Bond ETF.  TBT has been in a Up Trend.  Up Trends are easy to trade.  When a stock or ETF is in an Up Trend and on a Green Signal, all I do is watch the 2-period RSI for times when the ETF is on sale.  The attached daily chart of TBT shows when the Buy Signal was generated and the places where TBT was oversold.  Easy.

You could have done the same thing with Energy last month when it was on the strong Sector List with a Green Signal.  But now, my market timing signals are mostly Red.  That’s why I’ve been avoiding equities and trading gold.  BTW, when I see one of my key market timing indicators turn color, I simply establish either a ‘trial’ position or a Full Basic Position, depending on whether the stock or ETF is in the process of changing direction or is already in a Trend.  For example, with gold, most gold and mining stocks are still in the process of moving from a Wave 2 down into a Wave 3 up.  Under these conditions, I only allow myself to buy a ‘trial’ or partial position.  Once the stock or ETF moves into an Uptrend, I establish a Full Position and hold it.  I then use the 2-period RSI to add to the position, selling these newly acquired shares once the RSI becomes overbought.  When I’m scalp trading, like I’m doing now, I do the same thing, only I use shorter term bars, i.e. the 5s or 15s.  I’m also out of all positions by the end of the day.  Again, easy.  This way I don’t have to worry about what the ‘market’ is doing.  I don’t have to worry about interest rates or what’s happening in China or anywhere else.  I avoid all that worry.

Come Monday, all I’m interested in is gold.  It’s on a Green Signal.  I don’t care what gold did yesterday, or over the weekend.  All I care about is what it will do on Monday.  The indicators will tell me that.  The first thing I want to know is whether gold is trending or not.  My trend indicators will tell me this.  Then once I determine Trend or No-Trend, I’ll use the RSI to make money, buying gold on sale and dumping it when it becomes too pricey.  Again, it’s a simple strategy and it works.  By focusing on sectors with Green Signals, I don’t care what the commentators on FOX are saying or thinking about the markets.  I don’t care what MSNBC is saying about what’s happening in the world.   When the market opens on Monday, the only thing I’m concerned about is if my gold stock or ETF is in a Trend or not.  Then once I know this, I’ll know how to trade it.

Remember too that the markets are now in transition.  They’re moving from an uptrend into a down trend.  This will take some time before the transition is complete.  And during this time, there will be increasing volatility.  The increase in volatility will cause you to experience anxiety.  Don’t let that happen!  Keep your life simple.  Focus on the things that matter.

If you focus on what matters and trade simple strategies, your anxiety level will go down.  You will also increase your odds of making money.    

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

10-22-2018

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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.