Professor’s Comments March 28, 2018
Posted by OMS at March 28th, 2018
The markets rallied early, gaining over 240 points, then fell hard finishing the day down 345 points at 23,958. The NASDAQ and SPX were down 212 and 46 points, respectively. Volume on the NYSE was moderate, coming in at 107 percent of its 10-day average. There were 37 new highs and 125 new lows.
In yesterday’s Comments, I said I would be looking to fade an early morning rally. If you followed this strategy, you had a very nice day. Yesterday’s intraday spread between the high and low was over 700 points. This is the kind of day that traders live for. I hope you all made a bundle using the trading techniques and indicators I have been talking about on this web site and my Classes at UNF.
The market remains in a down trend. At this point, with my VTI-volume indicator on a solid Sell Signal, I must trade this market like Wave 3 down of Major Wave 1 down is starting. If this is the case, then the markets should continue to decline as Wave 3 down unfolds.
Notice that I’m no longer talking about a Bullish Scenario anymore. That Scenario is off the board now that the indicators and Lists have turned negative. There is still a slight chance, probably less than 10-15 percent at this point, that the Dow can stay above its 200-day moving average near 23,546. If it does, it’s possible that some type of Bullish Pattern can develop. I wouldn’t count on it.
The easier path is down, especially IF 23,500 is broken.
Here’s the thing: IF, the Dow starts to break below 23,500, it would do two things. The first is that it would confirm that Wave 3 down of the new Bear Market is underway. The second is that it would enable me to project the next target for the Dow with a high degree of certainty. BTW, my current target for Wave 3 down is the 20,500 level. In other words, IF the Dow breaks below 23,500, the odds increase dramatically for a decline of about 3,000 Dow points. This decline assumes that Wave 3 down will be 1.62 times the length of Wave 1 down. If it’s not, and the decline is 2.62 times Wave 1 down, the target should be closer to the 17,300 level.
This is the reason why I must consider the Bear Market Scenario my #1 priority. I simply can not ignore the real possibility of another decline between 3,000 to 6,000 Dow points.
Also remember that if all the above come to pass, it’s only the beginning. We will still have to complete Waves 4 and 5 down before the Bear Market completes. The final low could be 3-4 thousand points below the Wave 3 low. So please be careful!
Near the top of yesterday’s rally, I bought several shares of SDOW, a 3x inverse leveraged ETF. SDOW is NOT for everybody, but if you’re watching the short-term indicators closely, it can be fun to trade. I DO NOT hold highly leveraged ETFs like SDOW overnight. It is way too risky. So, IF the Dow opens higher today, I’ll once again be looking to buy SDOW, on the assumption that the Dow will test the 23,500 level.
I’ll also be looking to short a few stocks from weak sectors that have been highlighted by my algorithms. Two of these stocks were Interactive Brokers (IBKR) and Morgan Stanley (MS). One of the reasons I’m interested in shorting the brokers and banks now is because of what the Fed is doing. The combination of ‘Quantitative Unwinding’ and raising short-term interest rates at the same time is taking a significant amount of money out of the economy. This means that there will be less money available to buy stocks.
How much less? Hmmm? Well think about it this way. Since the decline started on January 26, the U.S. markets have lost about $2.8 Trillion. The entire U.S. GDP, or all the goods and services produced in the U.S. in 2017, was about $19.7 Trillion. So effectively the current decline represents about 14 percent of GDP. This money is no longer available to grow the economy. The money has evaporated! And with less money available, people are less inclined to buy stocks or take out loans for new cars or homes. I expect this decline in bank, financial, and brokerage stocks to continue.
Yesterday’s Sector Ratio fell to 23-1 negative. The only strong Sector was Household Products. The Weak Sectors were led by Real Estate, Autos, Transportation, Food Drug, Banks, and Financials.
Gold and most mining stocks fell yesterday. GLD dropped 0.79 cents to 127.49. My combination VTI-volume indicator on GLD remains on a Buy Signal.
Looking for opportunities to trade the short-side. That’s what I’m doing,
h
Market Signals for
03-28-2018
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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Category: Professor's Comments