Professor’s Comments August 26, 2016

Posted by OMS  at August 26th, 2016

The Dow fell 33 points, closing at 18,448.  Volume was moderate, coming in at 96 percent of its 10-day average.  There were 126 new highs and 16 new lows.

World markets appears to be waiting for Fed Chair Janet Yellen’s speech today.  Personally, I don’t believe what she says matters, because we have an election in just over 2 months, and I don’t believe she wants to rock to boat for the Democrats by raising interest rates.  But you never know how the market will interpret her comments.

With the current pattern there is still a possibility of one more rally to re-test last week’s highs.  If this happens, the rally would be final wave ‘c’ up of an a-b-c pattern to the top.  Given that the down action we’ve seen during the past week has not been impulsive, it tends to suggest a corrective wave ‘b’ vs. the start of a Major Wave 1 down.  Right now the VTI on the Dow is neutral and the 2-period RSI is showing an oversold reading of 7.55.  So final wave ‘c’ up could be triggered by Ms. Yellen’s comments, especially if she says anything about keeping interest rates low, or printing money.

Also, if the market likes what she says, we could see gold and mining stocks start to move significantly higher.  Right now they are EXTREMELY oversold and in patterns that suggest the recent pullback has been a wave 4.  Also, we’re now in a very favorable time period for gold and UDN, the inverse Dollar ETF, is still on the Dean’s List. A weak dollar should be good for gold.

Since 2009, gold has rallied during 6 of the past 7 years during the August-September time period.  The only year it didn’t rally was during 2014.  Gold continues to be in an Up Trend with the 50 > the 200.  And now with the VTI on GLD showing No Trend and a 2-period RSI buried in oversold territory with a reading of 2.81, I think you have to pay attention to gold.  Again, any words that suggest an ‘accommodative’ money policy from the Fed Chair could get gold moving higher.

Another reason I’m looking to trade gold while exercising caution on the overall market is the Honor Roll.  Remember, Emeritus is a Trend Algorithm, and even though several of the cockpit indicators have turned negative, the overall market hasn’t started to trend down.  The VTI is moving down, but is still not in the Trend Mode, so Emeritus is still not highlighting a lot of stocks as shorts. 

For the past two days he’s highlighted a few stocks from the healthcare sector, but that’s about it.  If the market is going to start moving lower, Emeritus should be highlighting stocks from several sectors.  Right now, now he’s not.  The fact that he’s still being quiet could be an indication that the recent decline in the markets is corrective (wave ‘b’ down). If this is the case, once wave ‘b’ down completes, it could be followed by one more final push higher.  Be careful.

BTW, the two stocks he highlighted as shorts yesterday, McKesson (MCK) and United Healthcare (UNH), both had very bad days.  MCK dropped 5.75 points yesterday, with UNH shedding 2.57 points.  The September 185 put option on MCK bought at the start of yesterday’s trading was up over 100 percent intraday.  

Waiting to see how the market reacts to Ms. Yellen’s comments and looking for a Rifle Trade on gold.

That’s what I’m doing,

h

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08-28-2016

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