Professor’s Comments May 14, 2019
Posted by OMS at May 14th, 2019
Early Monday, the Chinese escalated the trade war by raising tariffs 25 percent on $50 billion of U.S. goods after President Trump raised tariffs to 25 percent on $200 billion on Chinese imports last week. The tit for tat action caused the Dow to open 374 points lower on the news. The decline continued during the day causing the Dow to finish 617 points lower at 25,325. Apple (AAPL), probably the largest U.S. company to be impacted by a trade war, was down almost 6 percent on the news.
The NASDAQ and SPX finished down 270 and 70 points, respectively. Volume on the NYSE was moderate, coming in at 1065 percent of its 10-day moving average. There were 64 new highs and 123 new lows. Students should note that the number of new lows continues to exceed the new highs.
The thing I was watching for during the day that I didn’t see was institutional selling. It just wasn’t happening. This is what I always look for on a big news day, especially if the news is negative. I want to see what the Big Boys are doing. It’s one thing to see traders panic, like they did in the overnight market early yesterday, but if the institutions don’t panic it usually means that the market could be near a short-term bottom.
Remember, the patterns were not clear going into yesterday’s session. There were two scenarios on the board that suggested lower prices. One scenario suggested the Ending Diagonal Pattern was over (it could have truncated) and the Bear Market was starting. The other, a more Bullish Scenario, suggested a Wave ‘B’ down decline was underway and that once this wave completed, the markets would begin to rally again into the fall.
The reason I was watching the Money Flow was because I saw it as the key to determining which scenario was taking place. Without the institutions throwing in the towel, like they did last October, the odds were good that the markets would decline close to their 200-day moving averages after which they would begin to rally. I believe this is where we are today.
After yesterday’s rout, the markets are EXTREMELY oversold. The 2-period RSI on the Dow closed with a reading of 8.11 yesterday vs a reading of 4.89 on 9 May. Yet the Dow is over 500 points lower! That’s extreme negative divergence! So as a minimum, the markets should bounce today. If the bounce begins and there is ANY positive news from China, the bounce could explode to the upside. This is what happens when the markets trade on news and not on fundamentals. So be careful.
There were NO CHANGES to my market timing indicators after yesterday’s session. The Dow, NASDAQ, SPX and Russell 2K remain on Neutral Signals. Just remember, even though these Signals are Neutral, they turned Neutral after being Red. So, the underlying signal is still Negative.
Except for a small short position in Crude Oil, I’m on the sidelines.
The DMI’s remain Negative. The Tide and the Dean’s List remain Negative.
The Sector Ration fell to 17-7 negative after yesterday’s session. The Strong List was led by Real Estate, Insurance, Household Products, Food Drugs and Foods. Students should note that the Weak List continues to be dominated by defensive issues. If the market begins to rally, students should look for a major change to the Strong List as the semis, technology, computers, cap goods and financials begin to re-appear on the List. Without these issues on the List, the odds for a significant rally are low. In other words, don’t expect to see a sustainable rally until the leading sectors begin to appear on the Strong List again.
The Weak Sector List was led by Service, Energy, Material, Semiconductors, and Technology.
Model Portfolio: The Model Portfolio continues to hold a small ‘trial’ position in SCO, the inverse ETF for West Texas Crude Oil. The rest of the Model Portfolio, $91,479, remains in cash.
As of yesterday, the Model has gained $7,679 or 7.64 percent. This compares to a gain of 0.56 percent for the S&P for the same period.
BTW, one of the things I did find interesting yesterday was what happened with crude oil. Over the weekend, a few tankers in the Persian Gulf were attacked by saboteurs. This caused an immediate spike in crude oil prices, which caused SCO to fall to a low of 14.92 early in the session. However, by the end of the day, SCO rallied back and closed 0.40 cents higher at 16.20. This produced a gain of $450 for the Model. But the thing I found interesting was that the Big Boys began dumping crude immediately after crude prices spiked higher, just after ships were under attack!!!! This tells me that what’s happening in the Persian Gulf is probably NOT as big a deal as the news media would have you believe. Once again, it pay$ to ignore the news and follow what the Big Boys are doing. I still believe that once the news passes, crude oil will be trading lower as the next leg of its triangle develops.
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.
That’s what I’m doing,
h
Market Signals for
05-14-2019
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 10 May 2019 |
NASDAQ | NEU | 06 May 2019 |
GOLD | NEU | 06 May 2019 |
U.S. DOLLAR | NEU | 10 May 2019 |
BONDS | POS | 01 May 2019 |
CRUDE OIL | NEU | 06 May 2019 |
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Category: Professor's Comments