Professor’s Comments August 29, 2017

Yesterday’s early impulsive decline followed by a sideways move was likely sub-waves 1 down and 2 up of wave 3 of 3 down.  If this is the case, the markets should start to decline hard soon.  If they don’t, it’s likely something else is going on.

The Hi-Low indicator, one of the key breadth indicators that make up The Tide, turned negative again.  Last week, when this indicator turned positive, I mentioned that it was the most sensitive of the breadth indicators and is usually the first to turn in any short-term market move.  Its turn led to a 2-day rally.  So now that it’s negative again, let’s see if it leads the decline I’m expecting.

One reason I’m expecting the decline is because my 2-part VTI-volume indicator on the Dow also turned negative last night.  This indicator has been a very reliable for signaling intermediate term moves in the market.  The last time it turned (positive) was on 26 July, when the Dow was trading at 21,711.  The Dow rallied for 468 points after the signal.  Let’s see what happens now that the indicator has turned negative.

BTW, the DMI on the Dow also turned negative last night, so now the DMIs on all four major indexes are negative. Be careful!

During yesterday’s early decline, I was watching the 217.46 level on the Dow Diamonds (DIA) to see if it would signal the start of wave 3 down.  It never happened.  We got close (217.53), but no cigar.  Let’s see if it happens today.

Also, watch to see how 217.46 is broken.  The move down MUST be impulsive!  So far since the 8 August top, the Dow has made two impulsive moves down, one on 10 August (205 points) and another on 17 August (274 points).  If the Dow is starting wave 3 of 3 down, the next move down should be similar to those declines.  The decline doesn’t have to be all in one day, but there shouldn’t be any extended sideways trading action or retracements until the wave completes.

If wave 3 of 3 down starts today, I’m still expecting it to complete near the 21,450 level. That’s about 350+ points from yesterday’s close.  If I’m right about the short-term wave count, a small retracement wave should start to develop near the 21,450 level, before the Dow resumes its decline toward 20,400.  BTW, the 21,450 level is not cast in concrete.  It could be anywhere between 20,200 and 20,500.  The important thing to watch will be to see if the decline is impulsive.  If it’s impulsive, it increases the odds that 20,400 will be reached.  Impulsive action now will also help identify the move as part of Major Wave 1 down in the new Bear Market.

Remember, right now the 200-day moving average on the Dow is currently located at the 20,675 level.  The 50 is located at 21,676, about 1,000 Dow points higher.  So, IF the new Bear Market has started, the Dow MUST start breaking below these levels.  This makes 21,676 on the Dow another important number to watch during the next few days.

Yesterday’s Sector Report remained weak, but the number of strong sectors increased to 8.  The strong sectors include the Semis, Utilities, Material, PharmaBio and Financials.  The Weak Sector List contained 15 sectors led by Energy, Autos, Service, Consumer Goods, and Telecoms. The top weak sectors have RS ratings of -3 or -2.  So, the Weak Sector List is still a lot weaker than the strong sectors are strong.

Gold broke out of its short-term retracement pattern yesterday and generated a short-term Buy Signal.  It appears that wave ‘c’ up of wave ‘B’ of 2 is now underway.  GLD got as high as 124.73 yesterday, finishing at 124.69.  A few weeks back I was using a target of 125 for GLD when the pattern suggested a straight move to that level.  However, the pattern developed a small Hockey Stick that now projects a target closer to 127+.  Students should remember that even though the near-term target on GLD is now a few points higher, the move is still likely only part of wave ‘B’ up.  This means that once wave ‘B’ up completes, GLD should start wave ‘C’ down which could take it to the 105 level or below.  In other words, please be careful with your gold trades now. 

That’s what I’m doing,

h

Market Signals for

08-29-2017