Professor’s Comments August 22, 2017
Posted by OMS at August 22nd, 2017
The markets were mixed yesterday. The Dow rose 29 points, closing at 21,704. The NASDAQ and SPX each fell 3 points. Volume on the NYSE was low, coming in at 87 percent of its 10-day average. There were 51 new highs and 145 new lows.
Yesterday’s late rally in the Dow appeared to be the start of wave 3.2 up. This corrective wave should complete near the 21,800+/- level within the next 1-2 days if it forms an a-b-c pattern. If not and the correction forms a five wave triangle, the pattern could take a little longer to develop. Either way, the next large directional move after the corrective rally completes should be down.
Because of this, I will start looking to establish short or inverse positions in inverse index ETFs as the Dow approaches the 21,800 level. I continue to believe that negative positions established near this level will have a have a high probability of success.
BTW, I won’t be getting get too ‘cute’ with my trading this morning. What I mean by ‘getting cute’ is that even if the Dow only reaches the 21,750 level, that’s good enough for me to start buying inverse positions. With the possibility of a wave 3 of 3 down next, I want to have something negative on. Then IF the Dow moves closer to 21,800, as I expect, I’ll complete my purchases. Like I said, I want to put myself in position to take advantage of a potential wave 3 of 3 down.
I’ll be using the indicators on the shorter-term bars (5s or 15s) to do this. Given that I believe the rally during the next 1-2 days is either a wave 2 or 4 correction, I’m simply looking for overbought conditions on the 5s or 15s to establish my inverse positions.
You’ll note that I’m mostly talking about shorting the indexes now and NOT individual stocks. That’s because I believe the current conditions favor the indexes. I don’t want to bet on one horse, when I can bet the entire field for better odds. Remember, I’m looking for a move down to the 20,400 level. That’s what the Ending Diagonal Pattern suggests. The impulsive decline of 274 points we saw last Thursday identified the move as part or all of wave 3 down. So, IF this is the case, we either have more of wave 3 down to go, or the current rally is corrective 4 up within Major Wave 1 down. Either way, the next major move in the indexes should be down.
Monday’s Sector Report remained weak. The number of strong sectors remained at 4 with the weak sectors staying at 20. The four strong sectors were Utilities, Computers, PharmaBio, and Material. The Strong Sector RS ratings remain low, with lots of -3s, -4s and even one -5 (Telecoms) on the Weak List. The Weak Sector List was led by the Telecoms, Energy, Service, Autos, and Consumer Goods.
Students should note that this is the first appearance of the Consumer Goods Sector on the Weak List in a very long time. The reason this is important is because the consumer represents about 70 percent of the U.S. economy. The Consumer Goods Sector is very broad and includes things like furniture, foot ware, appliances, and textiles, among others. It’s a broad measure of the U.S. economy. So, when it appears on the Weak List, it’s telling you something. It’s just another reason I want to place my bets on the indexes and not on individual stocks.
Students should also note that all of the positive European country ETFs have fallen off the Dean’s List, and the EPV, the inverse ETF for Europe is now on the List. Hmmm? My VTI-volume indicator for EPV is still neutral (the volume part is negative), so I’m gonna wait anoter day or so before buying. I’m just being patient as the ETF battles with its 50. If it pulls back a bit today. I might buy a ‘trial’ p[osition. I like the pattern and the upside potential.
I’m still not all that interested in gold now. GLD appears to need a small pullback to the 118 level. It’s currently trading at 122.76. If it pulls back during the next few days, it would be very positive for a move to the 125 -126 level, possibly as high as 129. The recent rally in GLD from the early July lows, where the ETF moved from 115 to 122+, looks to be sub-wave ‘a’ of wave 2 up. If this is the case, and GLD pulls back to the 118 level, the 7-point ‘stick’ would set up a move closer to the 127-128 level before wave 2 up completes. That’s why I’m looking to buy GLD closer to 118.
That’s what I’m doing,
h
Market Signals for
08-22-2017
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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