Professor’s Comments June 20, 2019
Posted by OMS at June 20th, 2019
The markets rose mildly yesterday after the Fed decided to leave interest rates unchanged. The Dow finished with a gain of 38 points, closing at 26,504, The NASDAQ and SPX were up 33 and 9 points, respectively. Volume on the NYSE was moderate, coming in at 104 percent of its 10-day moving average. There were 174 new highs and only 29 new lows.
Yesterday’s Fed decision left the yield curve inverted, as short term Fed funds are now well above the rates for longer term (10 year+) treasuries. This highly unusual event usually leads to a recession within 6 months.
There was a small change in the A-D oscillator after yesterday’s session, so we need to be on the lookout for a Big Move within the next 1-2 days.
There were NO Changes to the market timing indicators for equities after yesterday’s session. The Dow, NASDAQ, SPX, and Russell 2K remain on Buy Signals.
The Tide, Dean’s List, and DMIs remain positive. The Money Flow indicators on the Dow and NASDAQ remain slightly positive. However even though the markets were up yesterday, the Money Flow indicators fell slightly. This tells me that the institutions are using the current rally to dump stocks. Hmmm?
The Dow appears to be in Wave ‘C’ up that has a target near or slightly above the 27,000 level. The upside target for the NASDAQ is near the 8,100 -8,200 level. Yesterday, the NASDAQ closed at 7,987 after reaching a high of 7,999. Students should understand that Wave ‘C’ up is the final wave of a termination pattern that can end at any time. The markets DO NOT have to go to their projected targets.
The Sector Ratio strengthened to 19-5 positive after yesterday’s session. However, 11 of the sectors on the Strong List have RS Ratings of zero or 1, so the Strong List is still not very strong. If the market starts to decline, all these sectors will likely drop off the Strong List turning the Sector Ratio negative again. The Strong Sector List continues to be led by Household Products, Real Estate, Insurance, Telecoms, and Food Drugs… all defensive sectors. The aggressive sectors, like the Semis, Technology, and Cap Goods are on the Strong List, but still near the bottom with low RS ratings. The Weak Sector List was led by Energy, Service, Retail, Utilities and Autos.
Model Portfolio: The Model continues to hold 500 shares of UGL and a lot of cash.
After yesterday’s session, the Model has gained $16,615 since inception or 16.6 percent which translates to an annualized IRR of 62.85 percent. The Model’s cash balance is currently $94,419.
Gold appears to be nearing completion of wave 1 up within Wave 3 up. Gold and most mining stocks are currently overbought. The 2-period RSI on GLD is 96.9. Buying stocks or ETFs with an RSI this high is not something I like to do. I learned a long time ago that when I act in haste, I usually get to repent at leisure. Because of this, the Model will be looking to add to its gold position during wave 2 down.
Basically, with an inverted yield curve staring me in the face, I’m not in any rush to buy or short anything now. I feel the equity markets are overpriced and in patterns that could end at any time. My timing indicator for Crude Oil is neutral, and with the pattern being a triangle, I prefer to wait for oversold or overbought conditions. And the rally in gold appears to be nearing completion. So I’m mostly on the sidelines for now.
The Model continues to watch Bonds. TMF was effectively flat yesterday, so it did not produce a change to its positive indicators. As long as the indicators on TMF and TLT remain positive, Bond prices will likely push slightly higher. However once Bonds reach their fast approaching targets, Bond prices should begin a nasty sell-off. The resultant increase I interest rates will likely have a negative effect on the economy and equity markets.
The Model Portfolio is being shown for educational purposed only. The Buy/Sell actions in the Model Portfolio are made based on technical indicators that can and do change frequently and should NOT be considered as recommendations for trading an actual portfolio. Any gain or loss in the Model Portfolio should not be used to predict future performance of the Model.
Earlier this morning, Iran shot down a RQ-4 Global Hawk, an unmanned aircraft system (a military drone) in international airspace over the Strait of Hormuz. This is causing gold and mining stocks to spike higher. Gold was already overbought prior to the attack, so now it’s EXTREMELY overbought. This might me a good time to place a protective stop order if you’re heavy into gold.
Remember, no stock, no matter how good goes to heaven. Stocks go to targets and now gold is way above its target for wave 1 of Wave 3 up.
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Market Signals for
06-20-2019
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 05 Jun 2019 |
NASDAQ | POS | 13 Jun 2019 |
GOLD | POS | 03 Jun 2019 |
U.S. DOLLAR | NEU | 14 Jun 2019 |
BONDS | POS | 19 Jun 2019 |
CRUDE OIL | NEU | 14 Jun 2019 |
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The Hockey Stick Pattern
The Creation of Waves and Trends
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Category: Professor's Comments