Professor’s Comments November 17, 2017

Posted by OMS  at November 17th, 2017

The markets rose sharply from extreme oversold conditions yesterday.  The Dow finished up 187 points, closing at 23,489.  The NASDAQ and SPX were up 87 and 14 points, respectively.  Volume on the NYSE was moderate, coming in at 92 percent of its 10-day average.  There were 121 new highs and 46 new lows. 

Yesterday was a good example of why I didn’t want to get too aggressive on the short side.  With positive Money Flow indicators and no Sell Signal from my VTI-volume indicator, the Big Boys bought the recent dip…. again.  But it was not enough to turn all my key indicators positive. So the cockpit indicators remain mixed.

Yesterday, when I mentioned that 2-period RSI was EXTREMELY oversold without the VTI being in the Trend Mode, I said the market should bounce.  And bounce they did for 187 Dow points.  But I also said that the bounce would clarify the scenarios I addressed yesterday for how the market will top.

After yesterday’s trading, it’s pretty clear that the topping scenario will be an Ending Diagonal, also known as a Bearish Rising Wedge (or Triangle).

Yesterday’s rally was likely all or part of wave ‘c’ up of the Rising Wedge.  Because the 8 November high on the SPX was 2,595, the next wave up or wave ‘c’ up, should be slightly higher than 2,595.  I projected a target near 2,600.  Yesterday’s high was 2,590, so we’re still a little shy of that level.  Wave ‘c’ is usually an a-b-c affair, so we could see a small pullback today before the SPX makes a final run up to 2,600-2,605 to complete Wave ‘c’ up.  I would expect this to happen either today or Monday.

After Wave ‘c’ up completes, the SPX should pull back to the 2,580 to 2,585 level for wave ‘d’ and before making a final run to the top, which should be slightly above the wave ‘c’ high.  Maybe 2,605-2,610.  That’s my best estimate of the pattern for now.  

Given that the period between now and just after Thanksgiving is usually very positive, I would not expect any pullback to be severe.  So, the SPX might not reach the 2,580-2,585 level on the pullback, but there should be some decline. 

If this scenario unfolds like I think it will, the markets should top in early December.  We will know when all our key indicators turn negative.  I still view the current rally as a shorting opportunity, so IF the SPX rallies to 2,600 to 2,605 on Wave ‘c’ up, I will begin to re-establish a few ‘trial’ short positions from that level.  The reason for this is because Ending Diagonals can fail.  Wave ‘e’ up does not have to reach 2,605 or higher.  The pattern can easily truncate, so if I get a chance to short the market above 2,600, I will.

I still believe that 2,557 level is EXTREMELY important.  Anything below that level would increase the odds that the Bull Market since March 2009 is over.

Yesterday’s Sector Ratio increased slightly.  The Ratio now stands at 14-10 positive.

The Strong Sectors were led by Semis, Leisure, Insurance, Banks, and Real Estate.  The Weak Sectors were led by Service, Telecoms, Household Products, Retail, and Food.  Continue to stay in stocks and ETFs in the strong sectors and avoid or short those in the weak sectors.  Continue to watch for changes in the Sector Ratio.  If the Sector Ratio maintains its positive bias, the markets will likely continue to form their topping patterns (Ending Diagonal) into early December.  But once we get past the Thanksgiving Holiday, please pay attention to any negative change in the ratio.

Remember, the proposed tax bill is now on the table.  I don’t see how it will create jobs or help most Americans.  A lot of the rally we’ve seen for the past year (since the election) was based on the hope of reducing taxes and creating jobs.  I don’t believe the proposed tax plan gets this done.  If a few more Senators start to realize this, the new tax plan will fail. And even if it passes, it will not have the desired effect.  Both of these outcomes will have a negative effect on the markets.

Protect yourself!  Continue to watch the 2,557 level on the SPX as the Ending Diagonal develops its final waves.

That’s what I’m doing,

h

BTW, as you probably noticed, I haven’t been talking about gold for weeks.  That’s because my indicators are mixed, and the pattern has been unclear. This has caused GLD to trade sideways.  But the sideways trading has caused GLD to form a ‘Blade’ of a negative Hockey Stick. And now the Bollinger Bands are starting to narrow.  Also, the volume portion of my VTI-volume indicator is close to generating a Sell Signal.  If the VTI-volume turns negative, I’ll let you know. GLD could be ready to start its next wave down.

Also, IYT bounced 2.89 points to 172.9.  My target for the rally is back to 50-day moving average resistance near 174+.  Yesterday’s rally did nothing to change any of my indicators.  They’re all still negative.  So now I’m just waiting for the 2-period RSI to become overbought before I re-establish my short position in the trannies.  Remember, IYT just made a big run to the downside.  That’s the ‘Stick’.  Now it needs to develop the ‘Blade’ by trading between the 50 and the 200.  This MUST happen if IYT is going to break below its 50-day moving average to start its next major wave down.  Holders of CSX should pay close attention to how the pattern on IYT is developing.  The pattern on CSX is very similar to that of IYT.  By trading close to its 200, CSX continues to pull the 50 down.  Once the 50 crosses below the 200, the stock will enter a down trend.  Pay attention!

Market Signals for

11-17-2017

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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