Professor’s Comments April 25, 2017

Posted by OMS  at April 25th, 2017

The Dow rallied 216 points yesterday, closing at 20,764.   Volume was heavy, coming in at 112 percent of its 10-day average.  There were 252 new highs and 16 new lows.

After Sunday’s Presidential Elections in France, there was palpable relief in mainstream Europe that independent centrist Emmanuel Macron would defeat far-right Marine Le Pen in a runoff contest on May 7.  Opinion polls taken before the election suggested Mr. Macron would be the favorite for the second round.  Markets rallied with the Dollar and gold retreating on the news.

The VTI on the Dow changed direction on 20 April one day after the Dow reached a low of 20,380.  The indicator is now heading up with a reading of 45.2, so it still has a slightly negative bias.  This could change in the next day or so.  If the indicator moves above the 50 level, it would tend to confirm that Major Wave ‘E’ up is underway.

Yesterday’s rally also turned the DMI’s on the Dow and NASDAQ positive which is further evidence that Wave ‘D’ down completed (truncated) on 19 April at the 20,380 level.

So, after seeing the DMI’s turn positive, I ran the Professor algorithm light night.  He had 107 longs, far more than the 50 longs required to confirm a DMI turn.  

In the past, when The Professor highlighted more than 100 stocks as longs after a DMI turn, the markets usually had a strong rally of at least 1,200 – 1,500 points.  Given that I expect final Wave ‘E’ up within the Ending Diagonal Pattern to complete near the 22,500 level, seeing those 109 longs was not unexpected.  It appears the summer rally is starting.

Again, like Wave ‘D’ down before it, final Wave ‘E’ up will not go straight up.  But it should be mostly positive, especially once it gets going.  It should be a nice wave to trade.  Right now, the VTI is still in the No Trend Zone, so this is the time I would expect to see pullbacks when the 2-period RSI becomes overbought.  But once the VTI moves above 70, I would expect a strong Up Trend to develop.

Right now, the 2-period RSI is slightly overbought at 86.87.  It should get closer to 95-99 before the first leg of Wave ‘E’ up completes.  Again, with the VTI still not in the Trend Mode, I’m looking for pullbacks.  This is where I want to establish the bulk of my long positions for the summer rally.

Yesterday, after seeing the market open higher, I bought a few shares of UDOW, the Proshares Ultra Dow 30 Bull 3X ETF.  This is an EXTREMELY aggressive ETF.  I might have overpaid for these initial shares, but I wanted to have something on if Wave ‘E’ up is starting.  If I’m wrong, and the market pulls back into late April, I don’t believe I’ll get hurt too badly given the strong support that existed at the 20,400-20,450 level.   

Anyhow, I’m starting to accumulate shares.  Not all of my funds will be going into an aggressive 3X ETF like UDOW.  But I want to have some in this 3X ETF.  Remember, the last time I saw The Professor highlight more than 50 longs was on the two days after President Trump’s election. Back then, The Professor highlighted 74 and 60 longs on 9-10 November.  The Dow rallied over 3,000 points in the four months that followed.  So, I’m willing to take a shot here.  I really like the odds.

Yesterday’s Sector Report strengthened slightly.  The report had 16 strong sectors and 7 weak.  The Semiconductors, Computers, Leisure and Food Drugs continue to lead, with  Energy, Capgoods, and Service lagging.  I didn’t see any sectors with Delta Trend Scores (DTS) at or near 100, but the Technology Sector had an 85.  This tells me that Technology will likely lead this market higher. 

XLK, the Technology SPDR ETF, had a nice pop yesterday after forming a sideways ‘Blade’ for the past 2-months.  The 2-period RSI is overbought at this point, but I’m going to buy a few shares here, and then look to add to them on any pullback.

I’m also gonna look for technology stocks that are high on the Member’s Watch List.  Especially those with Bullish patterns.

If any other sector has a large DTS in the days ahead, I’ll buy the ETF of that sector too.

I’m staying away from gold for the moment.  I still believe gold is in a minor wave 2 pullback within Major Wave 3 up.  I don’t believe we’ll see anything happen in gold until the French elections are decided in early May.  BTW, yesterday, UUP, the Dollar ETF, pulled back to the lower trendline of the triangle pattern I showed in my WSR.  I expect this trendline to hold, which means the Dollar should begin a strong rally into the late summer.  A rising Dollar will put pressure on stocks that depend on international sales for their earnings, so be careful when you make your selections for the summer rally.  Think domestic vs. international.  Think technology over service.

But mostly, think rally.

That’s what I’m doing,

h 

Market Signals for

04-25-2017

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