Professor’s Comments May 3, 2018
Posted by OMS at May 3rd, 2018
The markets had another choppy session yesterday, rising before the Fed announcement, then falling into the close. The Dow finished down 174 points, closing at 23,928. The large cap index got as low as 23,886 this time, retesting support near the top of my target Buy Zone of 23,500-23,800. The NASDAQ and SPX finished the day down 30 and 19 points, respectively. Volume on the NYSE was heavy, coming in at 114 percent of its 10-day moving average. There were 75 new highs and 65 new lows. BTW, the 75 new highs were enough to turn the Hi-Lo indicator positive, making The Tide neutral.
In yesterday’s Comments I talked about the need for caution. Seeing the negative VTI-volume indicator on the Dow, I said Tuesday’s rally could have been sub-wave ‘b’ up of Wave ‘c’ down. If this was the case, the Dow would rise early before starting another decline. And that’s exactly what happened.
If you were watching the markets closely yesterday, the tell that an intraday reversal was coming was the lack of impulsive action. There was no real follow through after the initial opening pop. So without impulsive action to the upside, it was likely the markets would resume their choppy corrective trading within the triangle. This will likely continue until final Wave ‘c’ down completes.
There was another small change in the A-D oscillator last night, so we need to be on the lookout for another Bug Move within the next 1-2 days.
The 2-period RSI on the Dow closed with an oversold reading of 6.8. The VTI and CCI continue to show NO TREND conditions. With an oversold RSI and No Trend, the market should bounce from current levels. Whether or not any bounce can reverse the negative cockpit indicators and cause a breakout from the triangle remains to be seen. At this point, the Dow would need to move above 24,600 for the breakout to occur.
My VTI-volume indicator on the NASDAQ moved back to a Neutral Signal after yesterday’s session.
Yesterday’s Sector Ratio fell to 20-4 negative. The indicator continues to suggest caution. The Strong Sector List is still being led by defensive sectors like Healthcare, Energy, Utilities, and Leisure. If the market is going to rally, the leadership on the Strong List will need to change. Be patient.
The Weak Sector List continues to be led by Household Products, Semis, Cap Equipment, Autos, Banks, and Financials. I’m still not interested in shorting any of these sectors now, because the Dow is likely in the process of developing a Major Bottom. However, IF the Dow should break below the 23,500 level, that would change everything.
Gold and most mining stocks fell yesterday. Gold still appears to be completing the final waves of a Bullish triangle pattern for Major Wave 2 down. My combination VTI-volume indicator for gold remains on a neutral signal. The Material Sector (the sector that includes gold) is near the bottom of the Weak Sector List. This too needs to change if gold is going to rally like I expect. BTW, gold ETFs and mining stocks are now at a point where I believe they should start being accumulated. I continue to watch the 2-period RSI for buying opportunities. Watch silver too.
Silver has formed a major Bullish triangle that goes back to July 2016. If silver can move above 17 in the weeks ahead, the pattern suggests a target near the 25 level. I’m currently looking to buy silver stocks and ETFs on any pullback. I’m not looking to trade silver. The silver stocks and ETFs I plan to buy, like PAAS, WPM, and SLV, will be longer term holdings. I plan to buy a small ‘trial’ position on any dip, and then add to this position once I see the Materials Sector back on the Strong Sector List.
That’s what I’m doing,
h
Market Signals for
05-02-2018
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | SM CHG |
DEANs LIST | NEU |
THE TIDE | NEU |
SUM IND | NEG |
VTI | NEG |
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Category: Professor's Comments