Professor’s Comments April 20, 2017

Posted by OMS  at April 20th, 2017

The Dow fell another 119 points yesterday, closing at 20,404.  The large cap index got as low as 20,380, mostly due to IBM which was down over 8 points.  IBM’s decline was responsible for about half the Dow’s decline.  The tech heavy NASDAQ and small cap issues on the Russell 2K rose 14 and 5 points respectively.  Volume on the NYSE was heavy, coming in at 113 percent of its 10-day average.  There were 86 new highs and 27 new lows.

The Dow continues to work its way through corrective wave ‘D’ down of a large Ending Diagonal Pattern.  Once this wave completes in late April-early May, probably near the 20,000 or lower level, stocks should rally to new highs into the late summer.

The VTI on the Dow remains negative and finished with a reading of 30.  The 2-period RSI finished with an oversold reading of 18.9.  So, with no Trend in place, the market should rally.

Yesterday I mentioned that there appeared to be trend line support near the 20,450 level on the Dow.  That support was ‘theoretically’ broken yesterday.  However, if you take out the 60 points from IBM, the Dow held that support.  In other words, it would have been the third time in 4 days that the 20,450 level was tested without breaking.  So, even though the Dow did fall below 20,450 yesterday, the trend line break is suspect.  This means it’s still possible that the Dow could rally back toward the 20,750 level in the next week or so before resuming its decline to 20,000. 

If this rally happens, I will look for entry points to short the market from higher levels.  I still believe that short positions in inverse index ETFs from the 20,650 level or higher will be winners as the market moves into late April – early May.

In Wednesday’s Comments, I mentioned that the S&P appeared to be forming a Head & Shoulders pattern with a neckline near the 2330-2350 level.  I also mentioned that the pattern needed one more small rally, to about 2350 or so, to complete the right shoulder of the pattern.  Yesterday the SPX got as high as 2353, so the right shoulder appears complete, but prices could go as high as 2375 without damaging the pattern. 

Once the right shoulder completes, students should watch the next pullback for a break of the neckline.  The head of the pattern is about 50 points, which places the target for the SPX near the 2280-2285 level.

Yesterday’s Sector Report was little changed.  The report had 16 strong sectors and 8 weak.  The Semiconductors, Utilities, Housing, and Food Sectors were the leaders, with Energy, Service, Banks, and Autos lagging.  Currently there are only 7 Sectors with positive Trend Scores, so even though the strong sectors still outnumber the weak sectors by 2:1, most of the of the sectors are now in down trends.  This tells me that short positions established from higher levels should continue to be good bets into late April.

Gold pulled back yesterday as the dollar rose.  The pullback was enough to turn the VTI on GLD negative.  This means that even though GLD remains in a Major Wave 3 uptrend, it’s likely that gold and mining stocks are starting a minor wave 2 correction within Major Wave 3 up.

Looking at the charts, the change in VTI means that GLD, currently at 121.73, could retrace to moving average and lower Bollinger Band support the 117-118 level.  If this happens, GXD, currently at 23.39, could pull back to the 20 level.  These minor wave 2 corrections are perfectly normal within a Wave 3 Uptrend, and are required if GLD is to continue to move higher. 

UDN, the inverse Dollar ETF remains on the Dean’s List near the bottom.  The ETF fell slightly yesterday and needs to be watched.  The VTI on UDN continues to rise, and is now at 61.2, meaning the ETF is still NOT in a trend.  So, with an overbought RSI and NO trend in place, UDN could also pull back allowing the Dollar to rise.  A rising dollar will put pressure on gold.

That’s what I’m doing,

h

Market Signals for

04-20-2017

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