Professor’s Comments December 4, 2018

Posted by OMS  at December 4th, 2018

The markets gapped higher on Monday with the Dow rising over 400 points on expectations of a trade deal with China.  However, once traders realized that the ‘deal’ was a 90 day postponement in U.S. tariffs, the markets struggled to hold those early gains and pulled back to finish 288 points higher at 25,826.  The NASDAQ and SPX were up 111 and 30, respectively. Volume on the NYSE was moderate, coming in at 111 percent of its 10-day moving average.  There were 76 new highs and 128 new lows.

Yesterday’s early rise and late pullback could have been the completion of sub-wave ‘a’ up and the start of sub-wave ‘b’ down within wave ‘C’ up of Wave 2 up.  If this is the case, it’s likely sub-wave ‘b’ down will continue today, with final sub-wave ‘c’ up starting later this week.  From the looks of the current wave structure, it appears that the current Wave 2 rally could be complete within the next week to 10 days, maybe sooner.  I’m still using a target for the Dow of 26,300+, but after seeing a potential negative Even Star Candlestick Pattern form on the Dow, it’s very possible that target won’t be reached.  Students should realize that the current rally is part of a corrective wave sequence that has a low probability (maybe 50-50) of reaching its target.

One of the reasons I say this is because of yesterday’s Sector Ratio.  Instead of rising as one would expect after a 288 point gain in the Dow, it fell to 8-16 negative.  But the thing that caught my eye was the low Relative Strength Rating of the top Sectors.  Except for Household Products and Leisure, which had an RSR of 1, all five of the remaining sectors on the Strong List had RSR ratings of zero.  That’s not very encouraging to see if this market is going to push higher.  Also, with the exception of the Semiconductors, all the other top sectors on the Strong List, including Utilities, Service, Healthcare, Telecoms and Semiconductors, are defensive. 

Yesterday’s rally in equities carried over to the precious metals market, generating a weak Buy Signal in gold.  GLD finished up 0.87 cents at 116.41.  The reason I say it generated a ‘weak’ Buy Signal was because the Money Flow indicator I use to confirm my VTI-volume signals did not turn positive after yesterday’s session.  So, because of this, the Signal easily could flip in the next day or so.  From a pattern perspective, it still appears that gold has more work to do before it starts its Major Wave 3 rally.  Gold mining stocks remain on a Neutral Signal.

I’m probably not going to do too much today. However I did see that Micron Technology (MU) was highlighted by the same algorithm that highlighted Intel (INTC) a few days ago. If the market pulls back today, I will be looking at both MU and INTC as possible candidates for a scalp trade.

The markets will be closed on Wednesday, 5 December, as the nation mourns the passing of President George H. W. Bush.  Because of this I won’t be posting Comments tomorrow.

That’s what I’m doing,

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Market Signals for

12-04-2018

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