Professor’s Comments October 24, 2017
Posted by OMS at October 24th, 2017
Yesterday was the worst down day for the markets since 5 September. The Dow finished down 55 points at 23,274. The NASDAQ and SPX were down 42 points and 10 points, respectively. Volume on the NYSE was moderate, coming in at 104 percent of its 10-day average. There were 203 new highs and 53 new lows.
Did yesterday’s decline mark the top I have been expecting? Hmmm? It’s still too early to tell, but it could have, especially in the NASDAQ. The Dean’s List turned neutral for the first time in months, as QQQ and QLD, the positive ETFs for the NASDAQ dropped off the List and QID appeared. So now only 3 of the 4 positive index ETFs are on the List.
One of the things students should note with QID on the Dean’s List is its impact on the ‘FANG’ stocks. If you’ve been listening to the networks recently, you haven’t heard them talking about these stocks in awhile. That’s because the recent rally has been driven mostly by stocks in the Semiconductor and Cap Equipment Sectors. The cheerleading in the ‘FANGs’ has stopped. A stock like Amazon (AMZN) hit its high of 1083 back on July. Yesterday it fell 16.6 points to 966.3. Google (GOOG) dropped 19.75 points yesterday to 968.45. Facebook (FB) was off 3.71 points. Apple (AAPL) was only off slightly, but appears to be developing a Head & Shoulders reversal pattern that should concern investors, especially if it breaks below 150.
The reason QQQ falling off the Dean’s List is important is because 34 percent of its composition is made up of four ‘FANG’ stocks: AAPL (11.56%), AMZN (6.8%), FB (5.94%) and GOOG (9.92%). So, IF you still own ‘FANG’ stocks, you might want to take note of the change. Even after falling over 117 points from its high, a stock like AMZN still has a P/E ratio of 246. I don’t know about you, but I still believe a ratio like that is insane!
Also, if you own energy, you might take note that DUG has replaced DIG on the Dean’s List. My VTI-volume indicator turned positive on DUG last night, but to be honest, I’m really not too concerned about energy now. I just think it needs a rest. DIG had a nice run since the VTI-volume indicator turned positive on 31 August, moving from 29.5 to a high of 35.8. But now with DUG back on the List, I view the change in the energy ‘Sticks in the Sand’ as more of a correction in a rising trend than anything else. I still believe crude oil is going higher, and once the correction completes we’ll see DIG back on the List. But for now, with DUG on the List, I must avoid energy.
Last night. the DMI on the NASDAQ (QQQ) finished with a reading of 0.51, its lowest reading since 29 September. It’s still positive, but barely. The DMI on the Dow (DIA) and both Coaches (Money Flow) remain positive. Also, my VTI-volume indicator on the Dow and NASDAQ is still positive. So, while a few of the indicators are starting to change, l need to see more turn negative before a top can be confirmed.
The Up-Down Oscillator turned negative, so now 3 of the 4 breadth indicators that make up The Tide are negative. The lone positive holdout is the Hi-Lo indicator. Yesterday’s 53 new lows were the most since 8 September, and another down day will likely turn this indicator negative as well.
Last week I mentioned I was watching the Money Flow indicators because they were close turning negative. After yesterday’s session, they were still positive. As long these indicators remain positive, money will continue to flow into the market and pullbacks like the one we saw yesterday will likely continue to attract buyers. So, with the 2-period RSI on the DIA showing oversold conditions after yesterday’s session, we could see some buying enter the market this morning. However, it remains to be seen how long this buying will continue. Watch the Money Flow indicators for signs that money is leaving the market. That’s when the decline I expect will begin.
Monday’s Sector Report was unchanged. The Sector Ratio remained at 19-5 positive. The Strong Sector List continues to be dominated by the Semis, Cap Equipment, PharmaBio, Material, and Computers. The Weak Sectors are led by Household Goods, Media, Telecoms, Consumer Products, and Food. Continue to stay in stocks and ETFs in the strong sectors and avoid those in the weak sectors. Watch for a change in the Sector Ratio.
Gold (GLD) rose 0.19 cents yesterday to 121.8. My VTI-volume indicator remains neutral. The pattern on GLD is still unclear, so I’m avoiding the metal for now.
That’s what I’m doing,
h
Market Signals for
10-24-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
SUM IND | NEG |
VTI | POS |
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