Professor’s Comments August 9, 2018
Posted by OMS at August 9th, 2018
Not much happened yesterday. The Dow pulled back 45 points to 25,584. The NASDAQ finished up 5 points; the SPX was flat. Volume on the NYSE was moderate, coming in at 90 percent of its 10-day moving average. There were 89 new highs and 42 new lows.
The cockpit indicators remain mostly positive. However, the Summation Index and A-D Oscillator have turned negative, telling me that fewer and fewer stocks are participating in this rally. I don’t believe this is a problem yet, but as the overall market moves higher, the divergences that these indicators are starting to show will be something to watch.
Right now, there are way too many strong sectors to be worried about divergences. With a Sector Ratio of 21-3 positive, the current market is poised to trade significantly higher. It’s when the Sector Ratio falls below 50-50 that I’ll begin to worry. Not now.
Last night’s Strong Sector List was led by PharmaBio, Transportation, FoodDrugs, Telecoms, Semiconductors, and Cap Goods. The Telecoms Sector contains a mixed bag of stocks. Some like Verizon (VZ), have moved higher since the current rally stated in early July. Others like AT&T (T) have faltered. So even though the Sector appears to be getting stronger, I don’t believe all boats in this sector will be helped by a rising tide. This is why IF I wanted to trade the Telecoms, I would only be interested in Telecommunication stocks that were on the Member’s Watch List. I would NOT buy a Telecom ETF. There’s too much competition in this sector which tends to limit performance. Also, it’s the wireless stocks, like AMT and CCI, that are leading the sector higher, not the stodgy phone companies. So, IF you decide to participate in this sector, think new, not old. BTW, American Tower (AMT) has pulled back the past few days and appears to be forming a small Hockey Stick. The ‘Stick’ is about 8 points, so once the market resumes its move toward 26,000+, AMT could be trading near the 157 level. That’s provided the indicators stay positive and Telecoms stay on the Strong List.
The Weak Sector List was led by Leisure, Healthcare, and Consumer Products. Students should note that Consumer Products have moved off the Strong List and have started to weaken. That’s actually a good sign for the overall market. I never for a moment believed that diapers and toilet paper would lead this market higher. But now that money is leaving the Sector, it should start flowing into the more ‘aggressive’ sectors.
One of the reasons I mention this today is because of what I want students to watch as the market trades higher. Remember, for the past several weeks, we’ve seen ‘defensive’ sectors like Consumer Products, Utilities, and Food Drugs at the top of the Strong Sector List. Now these sectors have moved out of the top 5 as the smart institutional money becomes more aggressive. Again, this is very positive for the market. But the next time you start to see these ‘defensive’ issues take over the top spots, you might want to follow the smart money and make a few adjustments to your portfolio.
Gold and mining stocks rose slightly yesterday. The slight rise in price caused the volume position of my combination VTI-volume indicator to turn positive. So now the overall signal is neutral. The indicator generated its first Sell Signal on 15 June with GLD at 121.34. Now GLD is at 114.91. The Materials Sector is still at the bottom of the Strong Sector List. So now I’m waiting for the momentum (the VTI portion of the indicator) to pick up. If it does and generates a Buy Signal, I’ll load the truck. Gold appears to be completing a Major Wave 2 down, with Major Wave 3 up due next. Be patient and wait for the signal.
That’s what I’m doing,
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