Professor’s Comments April 27, 2017

Posted by OMS  at April 27th, 2017

The Dow rose early, then pulled back to close down 21 points at 20,975.  Volume was heavy, coming in at 118 percent of its 10-day average.  There were 287 new highs and 11 new lows.

Yesterday’s slight pullback did not change the VTI.  It continues to head up and now has a reading of 66.4.  The 2-period RSI remains overbought with a reading of 85.5.  So, with an overbought RSI and the Dow still NOT in an Up Trend, it’s possible that Major Wave ‘D’ down is still not complete.  A break above the 1 March high of 21,161 would confirm that Major Wave ‘E” up has started.  Until this happens, trying to put a label on the waves will be difficult.

Yesterday I mentioned that one of my key Money Flow indicators was still negative.  And last night, the Coach on the Dow joined that indicator in negative territory.  So now two of my key Money Flow indicators are negative.  This tells me we need to guard against the possibility that the rally we have seen for the past few days could be part of a developing triangle for Major Wave ‘D’.  Again, a break above the 21,161 level would negate this triangle and confirm that Major Wave ‘E’ up is underway.

The 21,161 level is key because of the overall Ending Diagonal Pattern.   The Ending Diagonal is basically one large triangle.  And trading triangles is always tricky because of their many legs.  So, because it’s still possible that Wave ‘D’ down has not yet completed, I can’t simply buy and hold positive index ETFs for a move above 22,000+ without danger of another move down toward 20,000.  This is the problem now.  Once the Dow exceeds the 1 March high, I will have high confidence that Wave ‘E’ up has started, enabling me to hold these index ETFs.  But because the Dow is still below 21,161, I can’t do that yet.

So, I’m still trading, using the shorter-term bars, taking profits when I have them.

Yesterday I traded a few shares of gold and mining ETFs.  GDX traded down to 21.68 yesterday which was close to the Wave 2 low of 21.14 it made on 9 March.  The 2-period RSI closed with an oversold reading of 2.63.  Wave 2’s usually have two lows, so even if I’m wrong and GDX trades below 21.14, I felt yesterday’s buy was a relatively low risk purchasee given that I believe the final low will be between 20.5 and 21.14. 

Once again, with gold, we’re trading a non-trending situation.  The VTI on GDX is 44.1, so without a Trend in place, students should pay attention to the 2-period RSI when it shows oversold conditions. 

Yesterday’s Sector Report weakened a bit.  The report had 16 strong sectors and 7 weak.  The Semiconductors, Computer, Leisure, and Food Drug Sectors continue to lead, with Energy and Specialty Banks lagging.  There were no large Delta Trend Scores.  BTW, the VTIs for the Semis, Computer, Leisure, and FoodDrug Sectors are all in the Up Trend Mode.  This tells me two things:

1.  If the Dow starts to enter Major Wave ‘E’ up, these are the sectors that will likely lead the market higher.
2.  Given that these Sectors are now Trending, I need to watch the 2-period RSI for pullbacks.  These pullbacks will likely prove to be buying opportunities.

That’s what I’m doing,

h

Market Signals for

04-27-2017

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