Professor’s Comments January 25, 2017
Posted by OMS at January 25th, 2017
The Dow rose 113 points, closing at 19,913. Volume was moderate, coming in at 96 percent of its 10-day average. There were 209 new highs and 12 new lows.
Yesterday’s rally was the Big Move predicted by the small change in the A-D oscillator. The rally caused The Tide and the DMI on the Dow to turn positive. Noting the DMI turn, I ran The Professor algorithm to see if he would confirm the turn. He did. The Professor had 78 longs, more than the 50 required for confirmation.
So, with a confirmed DMI turn, it’s likely that Dow will start moving higher from the sideways consolidation pattern it has been in since mid-December. The question now becomes, how much higher? It’s a good bet that the Dow will re-test the 20,000 level, but how much beyond that is uncertain.
The reason I say this is because I still don’t have confirmation from the VTI and its supporting volume and Money Flow indicators. These are the indicators that I use in my Sector Rotation Strategy. And right now, even though the VTI is positive, its only showing a reading of 66.4, so it is NOT in the Trend Zone…yet. Also, after yesterday’s rally, the 2-period RSI is showing a reading of 83.7, so as of last night, the Dow is slightly overbought without a trend. With the Professor showing 78 longs, and the 2-period RSI only slightly overbought, it appears that I won’t get confirmation from the VTI for another day or so.
That’s OK with me. With the market trading near the projected top of a Major Ending Diagonal Pattern, I’m not in any hurry to trade the long side without say so from all my indicators.
Yesterday’s rally did not produce much of a change to the Sector report. It had 16 strong and 8 weak sectors, so the sectors are still showing a positive bias. The Semiconductors, Banks, and Transports continued to lead, with Service, Retail, and PharmaBio lagging.
Gold fell yesterday as expected. On Monday, I sold my shares of GDX because the indicators suggested gold would start a corrective wave 2 pullback. GLD dropped 0.52 cents to 115.27. In yesterday’s Comments, I mentioned that GLD was in No Man’s Land, trapped between the 50 and 200 day moving averages. I said it needed time to form a ‘Blade’. So, it the equity market is likely going to test Dow 20,000, another question for today is how low will GLD likely drop during its pullback as attention (money) is once again focused on equities?
To answer this question, we need to look at where gold (GLD) is in its overall pattern. Then once we know this, we can start making a few projections.
Looking at a chart of GLD, it appears the ETF completed a Major Wave 4 bottoming pattern in mid-December. The Wave 4 was a classic 3-3-5 flat or zig-zag, which is typical for a corrective wave 4 down. Since its 15 December low of 107, GLD has rallied almost straight up to the 116 level. After yesterday’s pullback, the ETF closed at 115.27. So, IF we assume that wave 1 up within Major Wave 5 up ended at the 116 level, the wave 1 ‘Stick’ was 9 points. A 38 percent retracement would be about 3.4 points, which would suggest a drop to the 113 level. The 200-day moving average on GLD is 113.8. In other words, it’s likely that GLD will trade down to somewhere between 113 and 114 during its wave 2 retracement. This is where I will be looking to re-purchase my gold shares.
BTW, the reason I’m using a 38 percent retracement is because I believe gold is in a Major Wave 5 up. It would be very unusual for a minor wave 2 within a Major Wave 5 to retrace more than 38 percent. So, 113-114 is my pullback target for GLD.
Another BTW is that with such a shallow pullback target for gold, it suggests that equities might not gain too much steam beyond the 20,000 level. But we’ll have to see about that.
That’s what I’m doing,
h
Market Signals for
01-25-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | POS |
SUM IND | POS |
VTI | POS |
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Category: Professor's Comments