Professor’s Comments May 15, 2018
Posted by OMS at May 15th, 2018
The markets continued their breakout rally yesterday, but could be nearing a short term top. The Dow finished up 68 points at 24,899. The NASDAQ and SPX finished the day up 8 and 2 points, respectively. Volume on the NYSE was low, coming in at 83 percent of its 10-day moving average. There were 123 new highs and 31 new lows.
All the cockpit indicators remain on Buy Signals. However, while my combination VTI-volume indicator is also on a Buy Signal, the VTI portion of the signal is still only at 65.2, so it’s NOT in the Trend Mode (above 70). Last night the 2-period RSI came in with an EXTREME overbought reading of 99.5, so it’s likely the markets will pullback today to relieve this overbought condition. I would view the pullback as a buying opportunity.
However, because yesterday’s early rally and late pullback could have been the end of Wave 1 of Major Wave 5 up, I’m not in any hurry to buy stocks. That’s because IF Wave 2 down of Major Wave 5 up is starting, it should take several days of down-up down action before it completes. Also, there should be two lows on the pullback if Wave 2 down unfolds as a typical a-b-c retracement. The pullback should form the Blade’ of a Hockey Stick pattern. The lows of the ‘Blade’ (oversold levels on the 2-period RSI) will be where I will be looking to buy stocks aggressively for the next major move up (Wave 3 up).
The other reason I’m not in any hurry to buy stocks today is because sometimes the market re-tests the Trend Line of the triangle on the pullback. And in this case, the Trend Line on the Dow is over 500 points from current levels, so the pullback could be significant. Remember, since the Dow entered its triangle on 26 January, the first down leg was 3,257 points. So, we’re dealing with large legs of a very large triangle. The first wave up which resulted in the breakout was over 1,460 points, so a 50 percent pullback for Wave 2 would be over 700 points. With numbers like these, you can see why I’m not in a hurry to do my buying.
Yesterday’s Sector Ratio also gave me pause. It fell back to 12-12 neutral after being 18-6 positive on Friday. If the market was going to continue its rally, I would have expected the sector ratio to gain strength, not lose it. But the pattern suggests we’re dealing with a Wave 1 up, not a Wave 3 up, so the reduction in the strength is likely telling us to get ready for a Wave 2 pullback.
Energy, Healthcare, Utilities, Semiconductors, Leisure, and Computers were the strongest sectors. These are the sectors where I will be looking to buy stocks as the pullback develops.
The weakest sectors were Household Products, Food, Service, Real Estate and Food Drugs. I will be avoiding stocks in these sectors. No weak sector stocks for me.
Waiting to see how the pullback develops.
That’s what I’m doing,
h
Market Signals for
05-15-2018
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 |
One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE
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The Hockey Stick Pattern
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Category: Professor's Comments