Professor’s Comments July 19, 2017
Posted by OMS at July 19th, 2017
The markets were mixed again yesterday. The Dow fell 55 points, closing at 21,575. The NASDAQ rose 30 points. Volume on the NYSE was moderate, coming in at 98 percent of its 10-day average. There were 119 new highs and 22 new lows.
Yesterday’s 159-point intraday decline in the Dow was the Big Move predicted by the A-D oscillator. It didn’t change any of the cockpit indicators; they’re all still Green.
The negative divergence between breadth and price that I mentioned yesterday continues. And now I’m also seeing this negative divergence in volume.
For example, last night, the Volume Accumulation (VA) indicator on the NYSE turned negative. This was the first time, except for a short period in late March – April, that this particular indicator has been negative since the post-election rally started back in November 2016.
The indicator has been showing negative divergence for the past month as prices have drifted higher. But now its negative. The reason I mention this change this morning is because volume leads price. If you look at every large move in the market for the past year, the moves occurred a short-time after the VA indicator changed direction.
The current rally leg that began in early May was triggered by the VA indicator turning positive on 5 May. Before that, the rally leg that started in late January was preceded by the VA indicator turning positive on 18 January. And before that, the VA indicator confirmed the post-election rally by turning positive on 15 November. The Dow rallied 900-points after that turn. But now the indicator is negative.
So even though all of the cockpit indicators are still positive, I’m starting to see a few warning signs of trouble in both breadth and volume. And these warning signs are occurring at a time when the overall pattern, which is an Ending Diagonal, suggests a top of major significance is approaching.
At the very least, I’d be cautious about doing any new buying at current levels. I say this because when the VA turned negative on 21 March, the Dow was at 20,668. A month later, the Dow was at 20,578 before the indicator turned positive again on 20 April. In other words, without volume, price will have a tough time advancing, even with the other indicators on the cockpit being positive.
And IF these indicators happen to turn negative when the volume accumulation is decreasing, it could be troubling. It doesn’t have to be a large decline in volume accumulation, just having a negative DMI at the same time the VA indicator is negative can result in large price drops. For example, on 21 March 2015, the DMI was negative when the VA indicator turned negative as well. The Dow was down over 2,000 points 10 trading days later.
The same thing happened the previous year, when the Dow fell over 1,110 points after the VA indicator turned negative with a negative DMI. Only this time the decline took 12 trading days.
Right now, the DMI on the DIA (show on the cockpit) is still positive…but barely. However, the DMI on the actual DJIA has turned negative. Considering how quickly the markets fell under these same conditions in the past, I’d be EXTREMELY careful in the days ahead. Remember, Ending Diagonal Patterns have a history of NOT making it to their final target (22,000+). They can truncate at any time.
Under these conditions, the fact that the VA indicator is now negative, should be considered a major warning. Trade cautiously.
That’s what I’m doing,
h
Market Signals for
07-19-2017
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-T |
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