Professor’s Comments July 27, 2017
Posted by OMS at July 27th, 2017
The markets were mixed again yesterday. The Dow closed up 98 points at 21,711. The gain was almost all due to Boeing which closed up 21 points at 233.45. The SPX finished flat. The NASDAQ finished up 11 points. Volume on the NYSE was moderate, coming in at 95 percent of its 10-day average. There were 168 new highs and 13 new lows.
Not much changed with respect to the overall patterns. The Dow, SPX, and NADAAQ are all finishing large degree Ending Diagonal Patterns. The VTI on the Dow is still moving up, and as long as this indicator continues to rise, it’s likely the markets will continue to chop slightly higher before reaching a final top. It appears they’re getting close.
One of the reasons I say this is because momentum as measured by the fast MACD is starting to show EXTREME divergence. This is usually a reliable sign that the markets are getting ready to change direction.
Another reason is because Volume Accumulation is simply drying up. I mentioned that this reliable indicator turned negative last week. It was the first time the indicator has been negative in months. It turned positive again on 21 July, but as the market rallied for the past two days, the VA Percent has not shown much of an improvement. It’s another classic sign of a weak market.
At this point, with the odds high that a significant top is approaching, I don’t see any point in establishing new long positions in most equities. But with positive signals on the cockpit and a positive VTI, it’s still too early to start shorting.
So I’m waiting and being patient. Sometimes not doing anything is the best thing you can do as a trader. And I think now is one of those times.
Also, since the DMI turned positive two days ago, I have been running The Professor algorithm to see if he saw a new up-trend developing. He didn’t. He only highlighted 29 stocks as longs which is not enough to confirm the DMI change. So it’s likely the Dow will continue to chop slightly higher to complete the Ending Diagonal Pattern. Maybe another half plus percent, possibly completing somewhere between 21,850 and 21,950.
The key will be to watch the indicators.
Here’s thing: Right now the patterns suggest a top on the Dow will occur near the 22,000 level. However Ending Diagonals have a high probability of truncating. They don’t have to reach their target. On the other hand, once an Ending Diagonals completes, it has a high probability of trading back down to where the pattern started, and in this case it’s near the 19 April low of 20,380 for the first target, then back to the 4 November low of 17,883. So if the pattern completes near 22,000, it sets up a decline of anywhere between 1,600 and 4,100 Dow points. I don’t like those odds.
This is why I’m shying away from trading most equities now. I believe that once the decline starts, money will start moving out of most overpriced, high P/E stocks and into stocks that have been out of favor as the market rallied. Stocks like energy, gold, and the miners.
It’s the reason I have started to accumulate trial positions in an energy ETFs, like XLE and DIG. Same for gold miners like GDX and GDXJ. BTW, GDX and GDXJ had a nice pop yesterday causing the DMI to turn positive. All of the ETFs mentioned are coming off TLB Patterns and now have positive DMIs.
Remember, in the Professor’s Methodology we use Patterns, Indicators and Lists as criteria to buy stock. So now we’re seeing energy and gold ETFs appear on the Dean’s List, with a Pattern (TLB), with positive indicators. My target is a ‘Rope Jump’.
That’s what I’m doing,
h
Market Signals for
07-27-2017
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 |
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Category: Professor's Comments