Professor’s Comments December 21, 2017
Posted by OMS at December 21st, 2017
The markets pulled back again yesterday. The Dow dropped 28 points, closing at 24,727. The NASDAQ and SPX fell 3 and 2 points, respectively. Volume on the NYSE was moderate, coming in at 96 percent of its 10-day average. There were 159 new highs and 39 new lows.
Yesterday’s pullback continued the corrective move that started on Tuesday. The decline was either sub-wave 4 of wave 3 up of final Wave 5 up or wave 4 of final Wave 5 up. Doesn’t really matter. In either case, once complete, the markets should resume their rally sequence into Christmas once the corrective waves are over.
The thing that got hit hardest yesterday was Bonds. TMF, the 20+ year Bond ETF, dropped 0.76 cents to 20.61. Apparently, Bond traders saw something in the tax plan they didn’t like, and started dumping Bonds. The decline caused TMF to fall below its 200-day moving average. So now it will be interesting to see how TMF trades. If it stays below the 200, it will pull the 50 below the 200 and put the ETF into a down trend. Why does this matter? Hmmm? Well IF Bonds start to move down, it means that interest rates are rising. This, combined with the Fed’s ‘Unwinding’ Program, could be deadly for the equity markets. It could negate any benefit of the tax reform bill.
Yesterday’s decline caused a few changes to the cockpit indicators. Two of the breadth indicators, the Summation Index and the A-D Oscillator, turned negative, changing The Tide to neutral. The Money Flow indicators for the Dow (DIA) and SPY remained negative, while the same indicator on the NASDAQ (QQQ) stayed positive. We need to watch the Money Flow indicators now, because the negative Money Flow indicator on the Dow and SPY means that institutions have started selling the large cap issues they have accumulated for the past year. Remember, large cap issues are the playground of the institutions. When they start selling, it usually means they see trouble ahead.
Tuesday’s Sector Ratio remained at 20-4 positive. However, PharmaBio replaced Energy on the Weak List, joining Utilities, Insurance and Service. The Strong Sector List continues to be led by Food Drugs, Leisure, Transportation, Household Products and Media. My VTI-volume indicator for the top 5 Sectors remains positive.
The composite VTI-volume indicator for the Sectors remains on a Buy Signal, with 22 of 24 individual Sectors still positive. The only Sectors on Sell Signals are the Utes and Insurance. So, the market is still very strong from a sector perspective.
Gold rose again yesterday, with GLD up 0.32 cents to 120.14. GLD has risen for three straight days since the VTI-volume indicator generated a short-term Buy Signal. It’s still not clear if the current rally in gold is part of a larger move up or a small correction in Wave ‘C’ down. We should know in another few days. With Bonds falling, and interest rates rising, it could also mean that that the markets are looking for a rise in inflation (?). It’s still too early to pin any of this on the ‘I’ word, but it could explain why gold is starting to become active. I’m still not ready to jump on the gold bandwagon yet. I want to see what happens as GLD approaches its moving averages. A ‘Rope Jump’ would tell me a lot about the next major move in gold.
BTW, my VTI-volume indicator generated a Buy Signal on the Oil and Gas Group, and the Integrated Oil Group yesterday. This was likely in response to yesterday’s vote by Congress on tax reform. Opening Alaska’s remote Arctic National Wildlife Refuge (ANWR) to oil and natural gas drilling, after almost four decades of debate on the matter, is a provision of the tax reform bill.
That’s what I’m doing,
h
Market Signals for
12-21-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
SUM IND | NEG |
VTI | POS |
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