Professor’s Comments February 27, 2018
Posted by OMS at February 27th, 2018
The markets bolted higher again yesterday. The Dow finished the day up a whopping 399 points, closing at 25,709. The larger cap index is now up 747 points since my VTI-volume indicator generated a Buy Signal. The NASDAQ and SPX were up 84 and 32 points, respectively. Volume on the NYSE was moderate, coming in at 93 percent of its 10-day average. There were 94 new highs and 26 new lows.
OK, with the VTI-volume indicator generating a Buy Signal, I was pretty sure the market would rally. I would have been extremely surprised if it didn’t. The two scenarios I talked about last week both had the market rallying toward the 26,000 level before doing anything else. So, after yesterday’s rally, the Dow is less than 300 points from my short-term target. What now? Hmmm?
Well, once again, looking at the indicators, we see the 2-period RSI at EXTREME oversold levels (94.3) with the VTI NOT in the Trend Mode. In other words, the markets should pull back today. After gaining 747 points in two days they need a rest.
But the real question now is will the pullback be a buying opportunity? Or are we too close to 26,000 to be getting aggressive?
Here the thing: Right now, the odds that the current rally is part of a larger move higher in the Bullish Scenario are only 50-50. This is because the Bearish Scenario has a top near the 26,000 level, and after yesterday’s trading, that target is less than 300 points away. It’s not like it as last week, when both scenarios had large upside targets. So we need to be careful. Remember, we MUST guard against the possibility that the Dow is very close completing a Major retracement Wave 2, and that once complete, a devastating Wave 3 down could take equity prices a lot lower.
Yesterday, the NASDAQ came within 83 points of its 26 January high of 7505. If it moves above its old high, it would argue strongly that the recent correction was wave 4 down, and that everything since is part of wave five up in the Bullish Scenario. But the Composite Index is still below its January high, so we don’t know that yet.
Bottom Line: I’m still being somewhat cautious, for a few reasons. The first is that the DIA, even after two days of strong rally, is NOT on the Dean’s List. That’s right…I had to check it twice to make sure it was not accidentally dropped from the data base. It wasn’t. The Dean just did not put it on his List. Also, look at the relative strengths of the ETFs on the List. They’re mostly 0s, 1s, and 2s. So, it’s NOT a very strong List.
Also, the Sector Ratio declined(!) after yesterday’s strong rally. It was 23-1 positive going into yesterday. After yesterday’s close, it dropped to 18-6 positive. This is still a very positive ratio, but the fact that it weakened considerably after yesterday’s rally tells me a lot of sectors did not participate. Semis, Computers, Banks, Healthcare, Cap Goods, and Material led the market higher. We knew they would. They have been leading the Strong List for weeks. Intel (INTC) and Microsoft (MSFT) gained 1.38 and 1.33 points, respectively. Cardinal Health rose 1.26 points to 70.57. That’s what happens with strong stocks in strong sectors when the market rallies.
Continue to stay in stocks and ETFs in the Strong Sectors and avoid those on the Weak List.
Gold and mining stocks were relatively flat yesterday. GLD rose 0.31 cents to 126.45. GSX gained 0.21 cents to 22.18. I’m still on a Buy Signal for gold, but on mixed signals for most mining stocks and ETFs.
BTW, my VTI-volume indicator on DIG, the oil and gas ETF, generated a Buy Signal yesterday. Also, Exon-Mobil (XOM) and Chevron (CVX) each generated VTI-volume Buy Signals yesterday after rising 1.31 and 2.01 points, respectively. The 2-period RSI is extremely overbought on both stocks after yesterday’s action with the VTI indicator NOT in the trend mode, so they should pull back today. If they do. I’ll consider adding shares to my ‘trial’ positions. However, I’m still being cautious with DUG near the top of the Dean’s List. If the Bullish Scenario starts to take hold, there should be plenty of opportunities to buy and trade energy as the Dow pushes beyond 26,000 on its way to 28,000+. But we don’t know that yet. Right now, I’m still struggling with Dow 26,000 and trying to determine if a number close to it will mark the end of Major Wave 2 up.
That’s what I’m doing,
h
Market Signals for
02-27-2018
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
SUM IND | POS |
VTI | POS |
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