Professor’s Comments August 1, 2019
Posted by OMS at August 1st, 2019
The markets fell hard yesterday after the Fed cut short-term interest rates by a quarter percent. The Dow finished with a loss of 334 points, closing at 26,864. The NASDAQ and SPX were down 98 and 33 points, respectively. Volume on the NYSE was heavy, coming in at 130 percent of its 10-day moving average. There were 319 new highs and 50 new lows.
Yesterday’s decline caused the market timing signal on the Dow to turn Negative. The timing indicators for the NASDAQ, SPX, and Russell 2K turned Neutral.
The DMI on the Dow, NASDAQ, and SPX turned Negative.
Yesterday’s decline also caused The Tide and the Dean’s List to turn Neutral. I was surprised to see that the Hi-Lo indicator still positive after yesterday’s session. Very strange….it was enough to give me pause about getting too negative. The Money Flow indicators on the Dow and NASDAQ also remain positive.
Yesterday’s decline was the Big Move predicted by Monday’s small change in the A-D oscillator. The move started minutes after Fed Chair Powell began answering questions about the logic of the rate cut and the dichotomy between his recent comments and the Fed’s action. The Fed is supposed to be a ‘rock’ when it comes to monetary wisdom, and yesterday’s rate-cut discussion was far from that. The Fed chair looked shaky during his explanation, like he was confused and trying to hide something. And once traders sensed his unease, they started to bail.
BTW, it appeared that the Plunge Protection Team was active yesterday, as large blocks of Buy orders hit the tape causing the Dow to gain 200 points just minutes after being 450 points down. It was a wild day.
OK, so where are we after yesterday’s rout? Well, the indicators are starting to turn negative, but for now, they’re still mixed. Also, the Money Flows have NOT turned negative yet, which tells me the institutions have not thrown in the towel. This means the markets will likely do some backing and filling before the real down draft begins. Like I said in previous Comments, it takes a while for a Bull to die. That’s why we tend to see rounding tops in Bull Markets as opposed to V bottoms in a Bear. It takes more time to kill the Bull.
Gold and mining stocks got clobbered yesterday when Chairman Powell said inflation was mild. Hmmm? I wonder if he has been to the supermarket recently. Seems like the indicators he uses don’t include things like beef or vegetables, and other necessary goods and services. No. Inflation is rising! Just because the Fed chair says inflation is mild doesn’t make it so.
Anyhow, yesterday’s pullback in gold means that wave 2 down is not finished and wave 3 up will have to wait. Wave 2 appears to be developing a complex 3-3-5 pattern instead of a simple a-b-c. I remain bullish on gold, but now that the metal has moved to a Neutral signal, it’s likely that wave 2 down will take a bit longer to complete. Once the Bear gets legs, money should begin moving into gold and mining stocks as it seeks a safe haven.
The Sector Ratio remained at 14-10 Positive after yesterday’s session. The fact that more sectors are still positive than negative is another reason for not getting too negative. The Strong Sector List was led by Semiconductors, Healthcare, Material (includes gold), Household Products and Media. The Weak Sector List was led by Retail, Autos, Service, FoodDrugs and Transportation. Seeing the Trannies back on the Weak List tells me more about the economy than anything Chairman Powell said yesterday. The economy is slowing.
Model Portfolio: There were NO CHANGES to the Model after yesterday’s session. The Model continues to hold 500 shares of NUGT, a 3X leveraged ETF for the Gold Miners and 800 shares of UGL, a 2X leveraged ETF for gold.
After yesterday’s session where gold got hammered, the Model is up 18.6 percent which translates to an annualized gain of about 48 percent. The Model continues to hold a lot of cash ($68,574) waiting for high probability opportunities to put the cash to work. With the patterns suggesting a decline of over 2,500 Dow points likely, the Model is patiently awaiting a change in signals. It would rather give up the first few points of a decline than get burned by a fake out retracement move.
The Model Portfolio is being shown for educational purposed only. The Buy/Sell actions in the Model Portfolio are made based on technical indicators that can and do change frequently and should NOT be considered as recommendations for trading an actual portfolio. Any gain or loss in the Model Portfolio should not be used to predict future performance of the Model.
With the market timing indicator for the Dow on a Sell Signal, and DXD on the Dean’s List, the Model is looking to buy a ‘trial’ position in DXD, the 2X leveraged inverse ETF for the Dow.
I have some data that shows that when the SPX closes down on the last day of the month but is still up month-to-date, there’s a tendency for the market to close higher the following session (today), before retesting yesterday’s low.
Looking to buy a half position in DXD.
The Model just bought 600 shares of DXD at 25.97.
That’s what I’m doing,
h
Market Signals for
08-01-2019
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 31 Jul 2019 |
NASDAQ | NEU | 30 Jul 2019 |
GOLD | NEU | 31 Jul 2019 |
U.S. DOLLAR | POS | 22 Jul 2019 |
BONDS | POS | 30 Jul 2019 |
CRUDE OIL | NEU | 29 Jul 2019 |
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