Professor’s Comments May 23, 2018
Posted by OMS at May 23rd, 2018
The markets fell modestly on Monday. The Dow was the biggest loser, closing down 179 points at 24,834. The NASDAQ and SPX were down 16 and 9 points, respectively. Volume on the NYSE was moderate, coming in at 104 percent of its 10-day average. There were 134 new highs and 41 new lows.
On Sunday, representatives of the governments of China and the U.S. announced that there would be no trade war between the two countries. So, Monday, the Dow rallied for 298 points on the news. Yesterday, other representatives said, not so fast, causing the Dow to give back a little over half of Monday’s gain. The pullback didn’t change my combination VTI-volume indicator on the Dow. It’s still on a Buy Signal. However, the same indicator on the NASDAQ moved back to a neutral signal. As long as these indicators remain positive, I will continue to view any pullback as a buying opportunity.
From a wave perspective, yesterday’s pullback appeared corrective. It could mean that sub-wave 1 of Wave 3 up is complete and sub-wave 2 has started. If this is the case, then the markets could continue to correct for the next day or so before resuming their upward trend. The 50-day moving average currently located at the 24,544 level is a possible target, but the recent lows near 24,650 are more likely to provide support.
It’s also possible that the large triangle that has been developing since 26 January is not complete and yesterday’s pullback was the start of Wave ‘e’ down within the triangle. If this is the case, I would expect the decline to be checked by the 50-day moving average as most times Wave ‘e’s’ are usually much shallower than any of the previous waves in the triangle. So, any pullback shouldn’t be lower than 24,544, give or take a few points.
Monday’s Sector Ratio increased slightly to 16-8 positive with the Semiconductor Sector joining the Strong Sector List. So now Energy, Healthcare, Cap Equipment, Semiconductors, Financials, and Computers are the top Sectors. The Banks have moved to the Strong List near the bottom. The List is starting to include the leadership I would expect to see IF the market was preparing for a major rally. Once (IF) the rally starts, I would expect to see the Sector Ratio move closer to or better than 20-4 positive. On the other hand, IF I’m wrong and the market starts a major decline, we should start to see it in the Sector Ratio. That’s NOT happening now.
The weakest Sectors were Household Products, Foods, Real Eastae, Service, and Retail. I don’t see any point in owning (holding) stocks in these sectors.
Gold and Silver continue to show signs of completing major consolidation triangle patterns. The Materials Sector remains on the Strong Sector List near the middle of the pack. If I’m right and the metals are starting their next major move up, look for the Materials Sector to move closer to the top of the Strong List.
If the market pulls back today, I’ll continue to look for opportunities to buy stocks in the strongest sectors.
That’s what I’m doing,
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