Professor’s Comments May 31, 2018

Posted by OMS  at May 31st, 2018

One day after the markets took a big hit, they turned around and rallied hard.  The Dow closed up 306 points at 24,668.  The NASDAQ and SPX were up 66 and 34 points, respectively.  Volume on the NYSE was moderate, coming in at 106 percent of its 10-day moving average.  There were 156 new highs and 40 new lows.

Yesterday’s rally was impulsive.  However, it’s still not clear whether the rally was a correction within the final wave ‘e’ down or the start of Wave 5 up that will take the markets to new highs.  We’ll need another day or so of indicator watching before this can be determined.  But things are improving.

My combination VTI-volume indicator on the Dow moved off its Sell Signal and turned neutral.  The same indicator on the NASDAQ remains on a Buy Signal. Taken together, I must go into today’s session with a positive bias.  But I need to see both indicators on Buy Signals before I become aggressive.

Also, the Sector Ratio still needs to improve.  Last week, we started to see some improvement in the Ratio, but it never got to the point where it told me that Wave 5 up was starting.  After yesterday’s session, the Sector Ratio improved to 9-14 negative.  The Ratio needs to turn positive with at least 15 to 16 sectors on the Strong List before I’m ready to say that Wave 5 up has started.  Seeing 14 negative sectors on the List doesn’t do it for me.

On the other hand, students should realize that this is perfectly normal for where we are in the pattern now, IF …and it’s a BIG IF, final wave ‘e’ down of Wave 4 is in the process of completing.  Yesterday’s low on the Dow was 24,248, so aggressive students might consider taking positions in the indexes using 24,248 as a stop.  This would provide a potential reward-risk of ratio of about 6.5 to 1 IF the Dow trades back to its January high of 26,617.  The odds increase to over 10-1 IF Wave 5 up has a through-over wave and reaches 28,000.  I really like those odds.  Trades like this with high odds and a convenient stop are rare, as most of my trades are done with odds of 2.5 :1 or better.  

BTW, the Strong Sectors in yesterday’s rally were Energy, Healthcare, Consumer Products, Food Drug and Computers.  The Weakest Sectors were Service, Household Products, Banks, Financials and Media. This need to change.  I don’t believe Wave 5 up can start as long as the Banks and Financials are on the Weak List. They need to get strong and lead!

Gold and the miners rose modestly yesterday.  GLD finished up 0.12 cents at 123.37.   My combination VTI-volume indicator on GLD is still on a neutral signal after yesterday’s trading.  However, the indicator is very close to generating a Buy Signal at a time when the Bollinger Bands are starting to narrow.  The pattern still suggests that gold is getting ready to enter its next Major Wave up in the weeks ahead.  I’m still accumulating and holding gold shares on pullbacks.

That’s what I’m doing,

h

Market Signals for

05-31-2018

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