Professor’s Comments July 27, 2016

Posted by OMS  at July 27th, 2016

The markets were mixed yesterday.  The Dow fell over 100 points early, then bounced back to close down 19 points at 18,474.  The S&P500 and NASDAQ were up 1 and 19 points respectively.  Volume was moderate, coming in at 108 percent of its 10-day average.  There were 217 new highs and 6 new lows. 

The Fed will be announcing its latest policy on interest rates at 2pm this afternoon.  I don’t expect much, especially with the Democratic Convention going on in Philadelphia.  Any significant change would probably dim the light on the nominee, and with Ms. Yellen being a Democratic appointee, I don’t see that happening.

So once again, we’ll likely see stocks rise for the first two hours this morning, then flat-line and steady as the market waits for the announcement.  What happens after 2pm is anyone’s guess, but there will likely be some volatility after the announcement.

The VTI on the Dow continued to move down yesterday but remains in the Up Trend Zone. However, The Tide has turned back to positive and those pesky Money Flow indicators remain pretty strong.  As long as money continues to flow into the market, prices will have a hard time moving to the downside.

It will be interesting to watch what happens to the Money Flow indicators after the Fed Meeting.  That’s because even though I don’t expect any sort of rate change, there could be a slight change in the wording of the announcement, and that could easily affect investor sentiment.

Gold rose from oversold conditions yesterday as expected.  GLD gained 53 cents to 126.  So now the VTI on GLD remains neutral and heading down, but now the 2-period RSI Wilder is no longer oversold (49.31).  For GLD to move higher from the current pattern, the VTI needs to start heading up.  Today’s Fed announcement could make that happen. 

If gold starts to move up after the announcement, it will likely be the start of wave 3 of 3 up.  So gold will be one of the more interesting things to be watching today.  Most of my custom Money Flow indicators on gold and gold stocks have remained very positive during the recent pullback and are positioned to support a rally in gold once the momentum shifts.

Yesterday I mentioned that I was looking to Rifle Trade gold stocks on the 60s.  The reason was because a gold stock like ABX has been in a continuous Up Trend (50>200) for months as depicted by the parallel lines or ‘Rail Road Tracks’ being made by the moving averages (see attached chart).  When I make these trades, I look for times when the 2-period RSI Wilder becomes oversold….like yesterday.  

But today I want to show you something else I look for, and that’s the divergence in the RSI when it becomes oversold.  As you can see form the chart, as long as a stock remains in an Uptrend, it’s usually a very good time to establish a trade whenever the 2-period RSI becomes oversold.  However, it’s usually an even better time to establish a trade when there is divergence in the oversold RSI.   An oversold RSI usually leads to a technical pop; divergence in the RSI usually leads to a rally!   That’s why I always watch the second dip in the RSI.

Waiting for the Fed announcement.

That’s what I’m doing,

h

Market Signals for

07-27-2016

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