Professor’s Comments Friday March 24, 2017

Posted by professor  at March 24th, 2017

The Dow fell 5 points, closing at 20,657.   Volume was moderate, coming in at 91 percent of its 10-day average.  There were 62 new highs and 26 new lows.

The VTI on the Dow continues to head down, and after yesterday’s trading is now at 55.7, which is getting very close to entering a negative bias below 50.  Once the reading drops below 50, I’ll start getting aggressive with my short positons.

The market started off yesterday with an early decline, but without a trend in place, the oversold 2-period RSI eventually took over causing the Dow to rally and finish near unchanged levels.  A lot of the volatility had to do with getting enough votes to pass the new Health Care Bill.

When it looked like the new Bill would not pass the House, the market fell.  Then when a late-night session was scheduled to resolve the issues, the market rallied, only to fall again when Speaker Ryan said the vote would be delayed.  Late last night, President Trump announced that the vote would occur today causing the futures to rally overnight. 

I would expect all this volatility to continue until the short-term issues with the Health Care Bill are resolved.  But once the process is complete, the overall pattern and negative indicators should take over and the market should begin a stair-step decline.  The pattern on the Dow suggests a move down to the 20,400+ level, then a small pop for a mini-wave 2, before minor wave 3 down tests the 31 January low of 19,785.  

Remember, the Dow is now dealing with unwinding a Major Ending Diagonal Pattern. This Pattern has a target near the 15,500 level.  It should take five waves and several months to get there.  Right now, we’re only working on the first wave of that five-wave sequence.

Yesterday’s Sector Report was little changed.  The report had 19 strong sectors and 5 weak. The Semiconductors, Leisure, Transportation and Computers continue to be the strongest of a weakening list.  The Energy, Service, Retail and Medial Sectors are the weakest.

The biggest change to the Sector Report was that now only 5 of the 19 strong sectors are still showing positive Trend Scores.  To view it another way, 14 of the 19 strong sectors are now showing negative Trend Scores, so even though the Strong Sector Report is still showing a lot of strong sectors, it’s NOT a very strong list.  The momentum shift to the downside is starting.

If the market rallies today on the Health Care Bill, I’ll look to fade the rally by buying a few shares of TWM, the inverse ETF for the Russell 2K.  I still want to focus on shorting the smaller-cap issues for now.

Gold and mining stocks traded sideways yesterday.  GLD fell 0.16 cents to 118.67.  The 50 continues to move up as does the VTI.  The VTI on GLD is now at 63.5, still shy of entering the Trend Mode.  The 2-period RSI on GLD remains in slightly overbought territory (76.0) so the ETF should continue to pull back or trade sideways for a few days more.  I continue to view any pullbacks as buying opportunities.

BTW, DUG is now at the very top of the Dean’s List.  I hope you noticed how seeing this negative ‘Stick in the Sand’ on the Dean’s List kept from trading energy, even though the calendar was saying it was March…the best time to trade energy.

Also, the VTI on UDN, the inverse Dollar ETF, has entered the Uptrend Mode with a reading of 73.8.  As long UDN stays on the Dean’s List and the VTI remains above 50, the conditions are positive for gold.

That’s what I’m doing,

h

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