Professor’s Comments April 26, 2017

Posted by OMS  at April 26th, 2017

The Dow rallied another 232 points yesterday, closing at 20,996.   Volume was heavy, coming in at 118 percent of its 10-day average.  There were 301 new highs and 17 new lows.

Since the VTI on the Dow turned positive on 17 April, the Dow is now up 417 points.  It will not go straight up.  The VTI closed last night with a reading of 60, so it’s still not in the Trend Mode.  The 2-period RSI closed with an overbought reading of 94.8.  So, with an overbought RSI and No Trend, the market is vulnerable to a pullback.

This could start to happen later today as President Trump is scheduled to announce his new tax plan.  The announcement could be a case of buy the rumor, sell the news.  We’ll have to see.

The reason I’m a bit cautious now is because of my Money Flow indicators.  Even though both Coaches have turned positive, one of my custom Money Flow indicators is still lagging.  So even though the other cockpit indicators are suggesting that Major Wave ‘E’ up is underway, I can’t be sure until the 1 March high of 21,169 is exceeded.

The odds are high that Wave ‘E’ up has started.  However, as long as the Dow remains below the 1 March high, there is a small possibility that Major Wave ‘D’ down is not complete.   The fact that all of my Money Flow indicators have not turned positive yet tells me that most of the rally we have seen for the past 4 days was due to short covering. For the rally to sustain itself, there needs to be new buying.  And I’m not seeing this yet.

So IF the market starts to pull back after the President’s tax plan is released, it’s still possible that the current rally is part of a complex 3-3-5 zig zag pattern for wave ‘b’ up within Major Wave ‘D’ down.  Like I said, I don’t believe this is the case, but until 21,161 is exceeded, the possibility exists.

Anyhow, because of the high odds for more rally towards 22,000-22,500 on the Dow,  I continue to look at any pullbacks as buying opportunities. 

Yesterday, I bought a few shares of UUP, the ETF for the U.S. Dollar, when it fell to its lower trendline and the 2-perior RSI became oversold.  The Dollar ETF is not something I would normally buy because it’s a lot like watching grass grow.  However, of all the stocks and ETFs I track, UUP probably has the strongest pattern, and as long as the 25.45 level holds, I have to own a few shares.  I’d rather be right and make a few bucks in a slow horse race than be wrong in a race with a bunch of speed horses.  Clearly the best pattern now is with the Dollar.  And if something strange happens in Europe in the months ahead, the ETF could produce a nice return.

Yesterday’s Sector Report continued to strengthen.  The report had 22 strong sectors and only 2 weak.  The Semiconductors, Computer, Leisure, and  Food Drug Sectors continue to lead, with Energy and Specialty Banks lagging.  The CapGoods Sector made a strong up move yesterday, coming in with a DTS of 111.  The move was driven by Caterpillar (CAT), which was up 7.61 points to 104.42 on a positive earnings announcement.

The Hockey Stick Pattern on CAT suggests a move to the 108-101 level.  But to tell the truth, I’d rather short CAT from the 108+ level than be a buyer of it here.  I’m not fond of CAT for many reasons, the least of which is because its management is involved in a Class action law suit because they allegedly lied to shareholders.  If I’m right about a rise in the Dollar, CAT could get hit hard once the current rally completes.  So even though I believe CAT is going higher short-term, I’m gonna pass for now.

Gold and mining stocks continued to pull back yesterday.  I still believe the pullback is a corrective decline within a larger Wave 3 Up Trend.   The thing I find interesting about gold now is that it continues to show overall strength while the Dollar is forming a Major Bullish Pattern.  Usually when the Dollar rises, gold falls.  But now we’re seeing Bullish patterns forming in both gold and the Dollar.

Same for treasuries.  After TMF and TLT made their ‘Rope Jump’ on 18 April, both ETF have pulled back to 50-day MA support in what appears to be a a normal wave 2 retracement.  This retracement has caused TBT, the inverse Bond ETF to appear on the Dean’s List.   This is what normally happens after a ‘Rope Jump’.  Bond traders should watch TLT and TMF closely now as the ETFs consolidate along their 50s.  Once this consolidation is complete, look for both ETFs to re-appear on the Dean’s List.   Their re-appearance would mean Wave 3 up is starting in Bonds.

BTW, strength in Bonds would also be a sign that the U.S economy is weakening.  Bonds will also tell us a lot about what’s happening in Europe.  So we need to watch Bonds for early signs about both markets.

That’s what I’m doing,

h 

Market Signals for

04-26-2017

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