Professor’s Comments October 31, 2017
Posted by OMS at October 31st, 2017
The markets were mixed yesterday. The Dow finished down 85 points at 23,348. The NASDAQ and SPX were down 2 and 8 points, respectively. Volume on the NYSE was heavy, coming in at 119 percent of its 10-day average. There were 115 new highs and 45 new lows.
Yesterday’s decline was led by the transports. IYT, the ETF for the Transportation Sector, was down 2.34 points. The decline caused my VTI-volume indicator to turn negative, generating a Sell Signal for the Sector.
I’m mentioning the trannies today because CSX, which was down 0.94 cents yesterday, is one of the major companies in Jacksonville, FL., where I live. A lot of my subscribers have some type of relationship with the company. For the past few months, the stock has been having a hard time breaking above its July high of 55.48, causing a Head and Shoulders reversal pattern to form on its monthly chart. The rising neckline of this pattern is currently at 49.67. If I were holding CSX now, I would not want to see it close below 49.50. Yesterday, CSX closed at 51.6. The DMI and my VTI-volume indicator on CSX are currently negative, so it’s a negative stock in a weakening sector. Remember, one of the reasons I’m watching the trannies now is because of the relationship between the industrials and the transports. Dow Theory says that the industrials and the transports should rise together. When the transports start to diverge from the industrials, as is the case now, it usually spells trouble for the markets.
BTW, on a longer- term basis, the chart pattern for the Transportation Index suggests it could fall from current levels, near 9,900, to about 2,000 in the next 2-3 years. It’s one of the reasons I’m watching the trannies so closely now. A break of the lower trend line, near 9,500 would confirm the start of the decline.
Yesterday’s early decline in the Dow started to look impulsive, but was quickly checked after a few minutes of trading. Another impulsive move to the down side started about 11am, but it too was quickly checked, after which the Dow basically traded sideways for the rest of the day. So, from yesterday’s trading action, it’s still hard to tell if sub-wave 3 of wave 1 down has started. A solid move down in the next day or so would confirm the wave count. The move down might have to wait until tomorrow, as today is the last trading day of the month, which usually has a positive bias.
The Money Flow indicator on the Dow (DIA) turned negative last night. So now, The Tide and one of the Money Flow indicators are negative. The Money Flow indicator on the NASDAQ (QQQ) remains positive. Both DMIs remain positive as does my VTI-volume indicator. The Dean’s List remains positive. With mixed indicators, I’m on the sidelines.
Monday’s Sector Report decreased slightly. Three Sectors (Retail, Utilities, and Real Estate) joined the Weak List causing the ratio to drop to 16-8 positive. The Strong Sector List is led by the Semis, Service, Cap Equipment, Banks, and Computers. Leisure. The Weak Sectors were led by Telecoms, Household Products, Media, Food/Drug and Foods.
Last week, I mentioned that the Transportation and Leisure Sectors had large negative Delta Trend Score (DTS), something often seen just prior to a large price move in the sector. Yesterday, we saw how both sectors got hammered. I mention this today because the Technology Sector had a large negative DTS (-106) yesterday. The decline caused the DMI on the Sector to turn negative.
After yesterday’s trading, only 7 out of the 16 Strong Sectors still had positive Trend Scores. So, while the momentum remains positive, the decreasing Trend Scores is warning that momentum is slowing in the sectors. Continue to stay in stocks and ETFs in the strong sectors and avoid or short those in the weak sectors. Watch the Sector Ratio closely. If it turns negative, it would be a major sign that the top I’m expecting is in.
That’s what I’m doing,
h
Market Signals for
10-31-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEG |
SUM IND | NEG |
VTI | POS |
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