Professor’s Comments August 24, 2017
Posted by OMS at August 24th, 2017
After Tuesday’s rally, the markets were down mildly yesterday. The Dow finished 88 points lower, closing at 21,812. The NASDAQ and SPX were down 19 and 8 points, respectively. Volume on the NYSE was low again, coming in at 87 percent of its 10-day average. There were 78 new highs and 51 new lows.
Yesterday’s early decline followed by mostly sideways trading in the afternoon was likely the initial sub-waves 1 down and 2 up within wave 3 down. If this is the case, once sub-wave 2 up completes, wave 3 of Wave 3 down should be next. We’ll know if any decline within the next day or so starts to look impulsive.
There was a relatively small change in the A-D oscillator of 12.8 points last night. The change was not enough for me to turn on the cockpit light, but its close enough to the 10-point requirement that we need to be on the lookout for a Big Move within the next 1-2 days.
BTW, yesterday’s trading action formed a Bearish Harami Candlestick Pattern on most indexes. This pattern often marks a short-term reversal. It formed when yesterday’s trading produced a small black candlestick that was inside the range of Tuesday’s large white body. The two-candlestick pattern looks like a pregnant woman with child. “Harami’ is an old Japanese word for “pregnant” or mother with child.
Anyhow, after yesterday’s early move down, I was watching the 217.84 level on the Dow Diamonds (DIA). This level, established early in the session, was the low of the day and represents a key number in today’s trading. If 217.84 is broken to the downside, it’s likely that wave 3 down is starting. My downside target for wave 3 down on the Dow is near the 21,450 level. My target for the Q’s is 138.29.
Right now, I’m trading several inverse index ETFs, but I’m watching the Dow and QQQ. So, IF the Dow and the Q’s decline to the targets I expect, I’ll look to take trading profits in the ETFs I’m trading. Remember, even though I expect the Dow to decline to the 20,400 level on this decline, the fall won’t be straight down. There will be retracement rallies along the way.
The anticipated decline I’m talking about above is likely only sub-wave 3 down of wave 3 down within Major Wave 1 down. So, IF I’m correct about this, we still have several minor sub-waves and a wave 4 up, before Major Wave 1 down completes. In other words, there should be several opportunities to take trading profits and then to re-establish those positions at higher levels as the market declines.
But first, we need to know the market is starting its Wave 1 decline, and for that to happen, we need to see the impulsive action of a wave 3 down.
Yesterday’s Sector Report remained weak. The number of strong sectors increased to 5 vs. 19 weak sectors. The strong sectors, which are not that strong with RS ratings of 1s and 0s, include the Utilities, Computers, Material, Semis and PharmaBio. The Weak Sector List continues to be led by Energy, Telecoms, Service, Consumer Goods and Autos. All the top weak sectors listed have RS ratings of -3. The rest have RS ratings of -2, -1s and 0s. So, the weak sector list is a lot weaker than the strong sectors are strong. This is NOT a condition you want to see if you’re Bullish.
Also, students should note that the Utilities Sector is now at the top of the Strong Sector List. Investors don’t buy the Utes when they think the market is going higher. They buy them when they start becoming defensive. The fact that the Utes and the Material Sector, which includes gold, are now two of the top five sectors should tell you something about what investors are thinking. Also, the fact that the Consumer Sector is now one of the top weak sectors is troubling. Consumer spending represents about 70 percent of the American economy.
BTW, it will be interesting to hear what Fed Chair Janet Yellen says about the economy in her speech on Financial Stability at the Jackson Hole Symposium tomorrow. It could move the markets.
Watching 217.84 on the DIA.
That’s what I’m doing,
h
Market Signals for
08-24-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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