Professor’s Comments August 15, 2019
Posted by OMS at August 15th, 2019
The equity markets fell hard again yesterday as weakness in Germany and China put pressure on the U.S. markets. Germany reported that its GDP contracted for the second straight quarter, which is the usually interpreted as the start of a recession. China reported that its industrial production was at its lowest level in 17 years. As I’ve been saying for the past few months, the slowdown in Germany, Europe largest economy will spread to other European nations and eventually spread to the U.S.
The Dow finished down 800 points, closing at 25,479. It was the worst down day of the year. The decline caused the Dow to close 375 points below its 200 day moving average. As I discuss in Class, this is something that institutional investors (smart money) pay attention to, so it’s likely they will become extremely cautious about coming back into the market now that prices are below the 200.
The NASDAQ and SPX were down 242 and 66 points, respectively. Volume on the NYSE was moderate, coming in at 107 percent of its 10-day moving average. There were 101 new highs and 311 new lows.
Yesterday was a 95 percent down volume day on the NYSE. It was a 99 percent down volume day on the S&P and the NASDAQ-100. It was only the 14th time in the history of the S&P that volume was so heavily weighted to the downside. Looking back, while short-term performance as mixed after this type of big decline, it rarely market the ultimate bottom.
There were NO CHANGES to the market timing signals. The Dow, NASDAQ, SPX and Russell 2K remain on Sell Signals.
The Tide, and Dean’s List remain Negative. The Money Flow indicators on the Dow and NASDAQ remain Neutral.
Yesterday’s impulsive decline was likely part or all of wave 1 down of Wave 3 down. At this point, I can’t tell where wave 1 down will complete, but it appears to have a lot downside to go. Students should understand that wave 1 of Wave 3 down should also consist of five waves, so until there is a retracement wave, probably starting today, technicians don’t have anything to measure. So, making a projection based on what we saw yesterday is not possible. But the 24,680 level on the Dow remains my target for now. This is my interim target. My longer-term target for the Dow is below the 26 December 2018 low of 21,713. In other words, this Bear is only just beginning. Protect yourself!
Yesterday the A-D oscillator closed with an oversold reading of 157.6. When you see readings like this, the market usually bounces. I believe this bounce will be a small wave 2 that will probably last from 1-3 days before the next decline begins. Usually when the Dow closes below its 200 for the first few times, it tries to rally back and re-test the moving average. Only this time, instead of acting as support, the 200 acts as overhead resistance. Then once it becomes obvious to institutional traders that the 200 is now an overhead barrier, they will throw in the towel and the rout (wave 3 down) will begin in earnest.
So, IF the Dow starts back up, I will look to re-establish the short positions in inverse index ETFs I sold yesterday. My target for wave 2 up will be near the 25,850 level. I don’t want to get too cute here, because I want to have something on for the next ride down.
Gold rose yesterday, but most miners were flat. Gold (the metal) finished at 1508. I had been using a target of 1500 +/- for the metal, so that target was reached yesterday. I’m now expecting gold to pullback slightly, mostly because it’s extremely overbought. If this happens, I will look to re-establish the shares of UGL I sold late yesterday. I still believe that gold continues to be the best bet on the Board. My target for gold remains near the 1600-1650 level.
Trannies: ITY fell to a low of 176.76 yesterday before closing at 177.14. I’m still looking at the 175 level as critical. I can’t say it enough, mostly because I have a lot of friends in friends in the Jacksonville area that own transportation stocks. If 175 is broken, the chart suggests the transports could get hammered during the next few years.
Bonds: Since our market timing indicator for Bonds turned positive on 30 July, TMF has been on a tear, rising from 24.38 to 32.82. Bonds are overbought at this time and are likely approaching their wave 3 top. If I owned TMF, I would be looking to do a little money management, perhaps using a stop just under yesterday’s close. No stock, no matter how good goes to heaven.
Dollar: Could be ready to start a nice rally. There’s a lot of European money coming into the Dollar now, mostly because of Europe’s low or negative interest rates. My market timing signal for the Dollar turned positive yesterday. The chart for the Dollar suggests a move from the 97 level to about 101. That’s a pretty big move for a currency. A rising Dollar usually means a weaker Euro, so we could see it drop from 112 to about the 95 (?) level. I’m taking Marcia to Strasbourg, France in a few months for the Christmas markets, so I should be able to pick up a few ornaments at reasonable prices. UUP (long Dollar ETF) and EUO (short Euro ETF) are back on the Dean’s List. Buying the Dollar and shorting the Euro (by buying EUO) usually makes for a good spread. Might even pay for the trip :>)
The Sector Ratio weakened to 5-19 Negative after yesterday’s session. The Strong Sector List was led by FoodDrugs, Household Products, Semiconductors, Computers and Telecoms. Students should note that toothpaste and toilet paper are now leading the List. These are staples that people buy in a weak economy. Seeing them at the top of the Strong Sector List should tell you something about the economy. The Weak Sector List was led by Energy, Retail, Autos, Cap Goods, and Transportation. Seeing the Autos, Cap Goods and Transportation on the Weak List is another sign that the economy is slowing.
Model Portfolio: The Model sold its share of DXD near yesterday’s close. Price was 28.70. The Model also sold half of its position in UGL at 50.52. So now IF the market rallies during the next few days, the Model will look to re-establish its positions in DXD and UGL, hopefully at lower prices.
After yesterday’s session, the Model is up 29.43 percent which translates to an annualized gain of 73.4 percent. The Model continues to hold a lot of cash ($113,254) and 325 shares of UGL, waiting for high probability opportunities to put its cash back to work. Please Note: The Model always looks for high probability trades within the scope of its charter. If you don’t see the Model holding shares of Bonds or the Dollar when the timing signals are supporting a trade, it doesn’t mean that these are not good trades. Many times when I look at the timing signals for Bonds and the Dollar, I wish that I had a place for them in the Model…but I don’t. That’s not how the Model was set-up. This should not preclude you from considering trades based on these signals.
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.
That’s what I’m doing,
h
Market Signals for
08-15-2019
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 31 Jul 2019 |
NASDAQ | NEG | 30 Jul 2019 |
GOLD | POS | 01 Aug 2019 |
U.S. DOLLAR | POS | 14 Aug 2019 |
BONDS | POS | 30 Jul 2019 |
CRUDE OIL | NEU | 13 Aug 2019 |
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The Creation of Waves and Trends
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