Professor’s Comments December 1, 2017
Posted by OMS at December 1st, 2017
The markets rallied hard again yesterday on news that Senator John McCain would support the Republican tax bill. The Dow sky-rocked another 332 points higher, closing at 24,272. The NASDAQ rose 50 points, while the SPX gained 22. Volume on the NYSE was EXTREMELY high again, coming in at 140 percent of its 10-day average. There were 298 new highs and 57 new lows.
The thing that was unusual after yesterday’s rally was the Advance-Decline ratio. It was only 1.38. So, the rally was not as broad based as one might expect on a day when the Dow gained better than 300 points. When the market experiences a spike rally on high volume, it usually pulls back over the short-term. We’ll have to see if this pullback develops into something more as the current wave 5 through over rally in the Ending Diagonal Pattern could be nearing completion.
Also, today is the first day of December, so most of the Bullish bias associated with end-of month mutual fund re-balancing should be over. I’m not sure how much of an effect, if any, fund re-balancing had on the current rally, as most of the rally appears to be associated with the tax cuts. But some re-balancing did take place, as evidenced by the changes that have taken place in the Sector Report.
BTW, passage of the Republican tax bill in its current form is still not a given. I watched one of the mundane procedural votes on the Senate floor yesterday and it was evident that Senators Corker, Johnson, and Flake were still having problems with some of the provisions of the bill. From their previous comments, I believe these issues have to do with lowering the corporate tax rate to 20 percent and the negative impact the tax cuts will have on the deficit. You could tell by their body language of the Senators that something was wrong. You just don’t see this kind of heated group discussion on the Senate floor. Because of this, I would expect to see several significant changes to the current bill before the next vote, which is scheduled for 11a.m. today.
There was a small change in the A-D oscillator yesterday, so we could see another Big Move within the next 1-2 days. If the bill passes, it could be a case of ‘buy the rumor, sell the news’, something we often see after big news events.
Thursday’s Sector Report strengthened slightly. The Sector Ratio increased to 23-1 positive. The Strong Sector List was led by Food Drugs, Banks, Transportation, Cap Equipment, and Service. The Utilities were the only weak sector. Continue to watch for changes to the Sector Ratio. If it starts to turn negative, it will likely mean that the top is in. BTW, Students should note that the Semiconductor Sector has slipped out of the top 5 sectors, the first time this has happened in months. The Semis are still on the Strong List, but are now near the bottom. My VTI-volume indicator for the Semis is still on a Buy Signal, but it’s close to turning negative.
Gold (GLD) fell another 0.94 cents yesterday to 121.10 after my VTI-volume indicator generated a Sell Signal. GLD is now resting on its 200-day moving average. If the ETF breaks below the 200, the negative Hockey Stick pattern on GLD should start to take over, dropping it to the 114 level. The DMI on GLD turned negative yesterday, so now the VTI-volume and the DMI are negative on GLD.
I added to my short position in GDX yesterday. My initial target for GDX remains at the 19 level, with 17-18 possible. GDX closed at 22.47. I don’t expect too much from gold after yesterday’s decline, as the 2-period RSI is oversold without a Trend in place. If the ETF bounces and the 2-period RSI approaches overbought conditions, I’ll use the opportunity to add to my short position. I believe gold and mining stocks are starting a wave ‘C’ down. Once this wave completes, I believe it will be a major buying opportunity for gold. But for now, I’m more comfortable being short the metal and mining stocks.
That’s what I’m doing,
h
Market Signals for
12-01-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | POS |
THE TIDE | POS |
SUM IND | POS |
VTI | POS |
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Category: Professor's Comments