Professor’s Comments August 16, 2017
Posted by OMS at August 16th, 2017
There was very little change in the markets yesterday. The Dow finished up 5 points, closing at 21,999. The NASDAQ and SPX fell 7 and 1 point respectively. Volume on the NYSE was low, coming in at 89 percent of its 10-day average. There were 57 new highs and 120 new lows.
Yesterday’s sideways action was likely wave ‘b’ of an a-b-c sequence for wave 2 up. The A-D oscillator was showing a reading of 137.2, which tells me the market is slightly oversold with most stocks starting down trends. So, once wave ‘b’ completes, the markets should rally back above 22,000 to complete wave ‘c’ of wave 2 up. Once this retracement wave sequence completes, wave 3 down should be next.
A few weeks ago, after looking at the Ending Diagonal Pattern and the first wave down, I estimated that the market would likely start its next major decline (wave 3 down) in mid-August. Well, mid-August is here now, and retracement wave 2 up appears to be playing out pretty much as expected having rallied back to 22,000. However, wave ‘c’ of the a-b-c pattern appears to be missing, so from a time perspective, the market might need another few days of rally before the decline begins.
My downside target for the Dow remains near the 20,400.
The Tide remains negative. The VTI-volume indicator on the Dow has moved to short-term Buy Signal. The same 2-part indicator on the NASDAQ and SPX (SPY) remains on a Sell Signal. The cockpit indicators remain mixed, with the Money Flow on the Dow being negative and showing a significant negative divergence. The fact that the indicators are mixed is a good indication that the markets are in a retracement mode.
Tuesday’s Sector Report was unchanged. The number of strong sectors remained at 9, with 11 weak sectors. Insurance, Financial, Utilities, PharmaBio, and Computers lead the strong sector list, with Telecoms, Service, Healthcare, Autos, and Energy lagging. The relative strength of the highest ranking strong sectors remains low, with a RS value of only 1. So, the strong sector list is still not very strong. On the other hand, the top 4 weak sectors are showing RS values of -3 or -4, so the weak sectors not only outnumber the strong sectors, they are a lot weaker than the strong sectors are strong.
Most gold and mining stocks fell yesterday. Gold (GLD) fell 0.94 cents to 120.98. My two-part VTI-volume indicator on GLD remains positive, but the volume portion of the signal is close to turning negative. If the volume turns negative, it’s likely that gold will not reach its target for wave ‘b’ of the pattern (near 125) and could start its wave ‘c’ decline toward the 105 level. Gold continues to remain a trade only because of the danger of a significant wave ‘c’ decline.
One of the reasons for gold’s weakness is the dollar. Since early March, UUP, the ETF for the Dollar, has been in a steady down trend. During this time, UDN, the inverse dollar ETF has remained on the Dean’s List. However, during the past two weeks, the Dollar is showing signs of bottoming. Right now, UDN is still on the Dean’s List, but if it drops off the List and is replaced by UUP, it would be a negative sign for gold. Like I said, the pattern on GLD suggests a decline to the 105 level before wave ‘c’ down of corrective wave 2 down is complete.
That’s what I’m doing,
h
Market Signals for
08-16-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
SUM IND | NEG |
VTI | POS |
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