Professor’s Comments January 3, 2018
Posted by OMS at January 3rd, 2018
The markets rallied hard on the first trading day of the new year. The Dow finished up 105 points, closing at 24,824. The NASDAQ and SPX rose 104 and 22 points, respectively. Volume on the NYSE was heavy, coming in at 121 percent of its 10-day average. There were 187 new highs and 35 new lows.
Yesterday’s rally caused most of the cockpit indicators to turn positive. This tells me that the rally was likely the start of sub-wave 5 of wave 5 of final Wave 5 up. Once this rally completes, the indicators should start to turn negative telling us that the Bull Market that started in March 2009 is over.
In last weekend’s WSR, I mentioned that I was being cautious about starting new ‘trial short positions’ because the Sector Ratio was still very positive. I haven’t changed my opinion on this because after yesterday’s session, the Sector Ratio is still 21-4 positive. The only weak sectors are Insurance, Utilities, Technology, and PharmaBio. These Sectors do not contain enough stocks to cause the kind of major decline in the market that I expect. More sectors need to show weakness before that happens. Otherwise, the Dow will likely continue to push slightly higher, testing the 25,000+ plus level, before the cockpit indicators turn negative.
In my WSR, I also mentioned that I was watching the Auto Sector because they posted a large negative Delta Trend Score (DTS). I also mentioned that the Bollinger Bands in the Sector were tightening, but I DID NOT have a VTI-volume Sell Signal on the Sector. This remains the case after yesterday’s session, so I’m still watching the Autos. Anytime I see the Bollinger Bands tightening, I’m always looking for a Big Move. If the VTI-volume indicator turns negative, I’ll let you know.
Several Sectors did not participate in yesterday’s rally. One of them was Real Estate. For the past year, real estate stocks and REITS have performed well as investors bought them seeking higher yields. But now that interest rates are rising, and the Fed is “unwinding”, money is starting to flow out of these vehicles. Yesterday the Real Estate Sector had a relatively high negative Delta Trend Score (-88), which is not over the -100 I usually look for, but is still something to watch. I don’t have a VTI-volume Sell Signal on that sector, but like the Autos, it’s close and the Bands are extremely narrow. If I owned REITs now (I don’t), I would be very cautious about the sector.
The other sector that did not participate in yesterday’s rally was Insurance. It got pounded, even though the Dow had a big up day. The Insurance Sector has been on the Weak List for weeks. My VTI-volume indicator for the Insurance Sector remains on a Sell Signal. Continue to stay in stocks in the Strong Sectors and avoid or short those on the Weak Sector List. It pay$.
The Strong Sector List continues to be led by Energy, Transportation, Materials, FoodDrugs, and Cap Equipment. BTW, ChevronTexaco (CVX) rose another 2.29 points yesterday, to 127.58. The stock is up now over 7.5 points since its VTI-volume indicator generated a Buy Signal on 22 November. If you look at a daily chart of CVX, you can see how it started its final Wave 5 rally on 25 July at the 104 level. Since the rally began, the stock has risen on five distinct waves and is now in final wave 5 up of the sequence. Chevron is a major Dow component, and its five-wave rally since July has helped boost the Dow higher. But now the wave count suggests the rally is nearing completion. The VTI-volume indicator on CVX is still positive, but the volume portion of the indicator is starting to show negative divergence. If it turns negative, I’ll let you know. Energy has had a nice run, but as I always say, no stock, no matter how good, goes to heaven.
That’s what I’m doing,
h
Market Signals for
01-03-2018
DMI (DIA) | POS |
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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Category: Professor's Comments