Professor’s Comments May 30, 2019

Posted by OMS  at May 30th, 2019

The markets fell hard again yesterday.  The Dow fell below its target level of 25,000 (24,938) before bouncing into the close.  It finished with a loss of 221 points at 25,126. The NASDAQ and SPX finished down 60 and19 points, respectively. Volume on the NYSE was heavy, coming in at 110 percent of its 10-day moving average. There were 71 new highs and 211 new lows.  

Yesterday’s decline was impulsive, so even though the Dow held the 25,000 level, it’s still not clear whether the decline was the completion of wave ‘c’ down within Wave ‘B’ down or the beginning of a much deeper decline.  The decline to 24,938 consisted of five waves, so it’s possible that wave ‘c’ of ‘Wave ‘B’ down completed yesterday.  However, the 25,000 level remains critical as this level is the ‘Neckline’ of a Head & Shoulders Pattern.  If the 25,000 level is broken, the Dow will likely decline to the 24,000 level or lower. If this happens, the odds are high that the next Bear Market has arrived.

The VTI-volume indicator on the Dow and my custom Money Flow indicator for the index remains negative.  Like I said yesterday, seeing the negative Money Flow indicator on the Dow is a Big Deal.  It tells me that a few of the Big Boys have started to sell. They are no longer just moving money around between sectors.  Now they’re moving money out of the markets.  This is a Major change that needs to be watched.

One of the things I’m also watching now is the European Union (EU) elections.  The populist parties that want to dismantle the financial structure of the EU have gained control, so for now, there’s chaos in Europe.  Yesterday, some of this chaos spilled over into the U.S. markets as investors tried to determine where to put their money. One of the places that benefited from the confusion was U.S. treasuries, as money flowed into bonds causing TMF to spike to a new high. (BTW, our Bond timing signal has been on a Buy Signal for the past few weeks.)  Add an inverted yield curve to the mix, and it’s no wonder that investors are scared and confused.  Anyhow, don’t let any of this extreme volatility get to you.  Like I said above, the markets are in a state of flux, where they’re trying to sort things out.  Now that the Dow has dropped to the 25,000 level, the patterns are no longer clear.  So, it’s NOT the time to be bold and try to guess what will happen.  No.  We’re going to watch the Money Flow and let the market tell us what it’s going to do.

Right now, except for treasuries, the flow of money is still not doing much.  It’s NOT going into gold, or crude oil, and its still NOT leaving equities in mass.  So, we’re going to wait a few more days.  If investors start to believe that EU elections will cause Europe to break-up,  money will start to leave Europe and flow heavily into U.S. equities. We will see this in our indicators.  It won’t be a short-term process. But right now, the indicators are only suggesting the European economy is slowing and NOT falling apart.  So, let’s keep a cool head and wait a few more days to see how things develop.  Remember, there are still several other things on the table now…like a trade war with China, increased tensions in the Mid-East, and a crazy leader in N. Korea looking for attention.  If the status of any one these items changes, either positive or negative, it could cause a wide swing in the market. 

There were NO Changes to the market timing signals for equities.  The Dow, SPX, NASDAQ, and Russell 2K remain on Sell Signals.

The Tide and the Dean’s List remain negative.  The DMIs remain Negative.

The A-D oscillator closed with an EXTREMELY oversold reading of -161.46.  Readings below -150 usually produce a short-term bounce.  The 2-period RSI is also EXTREMELY oversold at 7.52. 

At this point, with the Dow still holding above 25,000, its possible that Wave ‘B’ down completed yesterday.  It’s also possible that once the Dow bounces from oversold conditions, the 25,000 level will be re-tested and broken.  

IF the market bounces today, I will be looking to re-establish the two ‘trial’ inverse positions that were sold yesterday.

The Sector Ratio improved to 16-8 negative after yesterday’s session. The Strong List continues to be led by Real Estate, Household Produces, Insurance, Telecoms and Foods.  All defensive sectors.  This is NOT the List you want to see if you’re Bullish on the markets.  The Weak Sector List continues to be led by Service, Energy, Semiconductors, Retail, and Material.

Model Portfolio:  The Model sold its two inverse positions in DXD an QID just after the market opened yesterday.  The Dow hit its target level, so the Model booked the profit.   The Model is now 100 percent in cash ($112,019).

Since inception, the Model has gained 12.01 percent, which translates into an annualized IRR of 55.36 percent.  During the same period, a buy and hold strategy for the SPX gained 0.42 percent.   

The Model is still void of gold and continues to look for an opportunity to re-enter the inverse crude oil trade. Crude oil prices are tied to the overall economy. So, IF the ‘Neckline’ on the Dow at the 25,000 level is broken, I’d feel better about the inverse crude oil trade. But right now, because crude its still developing the legs of its triangle, I’m just watching. Trading triangles is a tough game and the odds favor entry points at either oversold or overbought levels. Neither of these conditions exist now.

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

05-30-2019

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

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.