Professor’s Comments November 9, 2018

Posted by OMS  at November 9th, 2018

The markets were mixed yesterday.  The Dow finished up 11 points at 26,191.  The NASDAQ and SPX fell 40 and 7 points, respectively. Volume on the NYSE was low again, coming in at 82 percent of its 10-day moving average.  There were 75 new highs and 68 new lows.

Students should note how the past few days of rally have been on EXTREMELY low volume. This contrasts to the high volume we saw when the market was declining in October. Low volume rallies after high volume declines are usually retracement rallies. Once they complete, the next wave down of the Bear Market should begin.

The Fed kept interest rates unchanged but said they would raise them in December.  The markets rallied on the news, with the Dow gaining almost 100 points before pulling into the close. The initial rally and pullback formed a bearish shooting star candle pattern on several of the major indices. If the Dow continues to pullback today, the shooting star will turn into an Evening Star, which is usually a reliable reversal pattern.

Yesterday’s late pullback also caused the Dow to close below its Upper Bollinger Band generating a Bollinger Band Sell Signal.  So, with the Dow and the other major indexes currently at target highs, the negative candle patterns and Bollinger Band Sell Signals are the first signs that retracement Wave 2 up is over and impulse Wave 3 down is about to begin.  A negative change in my market timing signals would confirm that Wave 3 down is underway.

Yesterday I mentioned that the 2-period RSI on the Dow and SPX was EXTREMELY overbought with NO Trend in place, so those markets should begin to pullback. Both indexes pullback, but they waited until after the Fed announcement.  Interesting enough, even with the pullback, the 2-period RSI on the Dow remains EXTREMELY overbought at 97.7 with NO Trend in place (CCI at 42.3), so the same overbought conditions that caused the late pullback yesterday remain in place today.

The Sector Ratio rose to 11-13 negative after yesterday’s session. The Strongest Sectors were Service, Insurance, Food Drugs, Media and Autos.  With the Dow overbought at target levels and the Sector Ratio having only reached 11-13 negative, we need to pay attention to any large moves to the downside now.  Remember, my initial target for Wave 3 down is near or below the 23,500 level, with a decline below 23,000 possible.  For some reason, seeing the Sector Ratio reach 11-13 negative reminded me of Picket’s charge at Gettysburg, which many consider the high water mark of the Confederacy.  We’ll see if stocks have the same results as General Picket in the days ahead.

BTW, I saw something else that bothered me yesterday that want to talk about. One of the more famous newsletter writers sent out a letter yesterday apologizing for one of his calls.  I won’t tell you his name, but the stock was Medifast, MED.  This stock was at the top of all his highly priced recommended lists for months, so he needed to say something.

If you look at a chart for MED, you will see that it reached a high of 260.98 on 13 September. By 20 September, MED had pulled back to the 214 level about a month BEFORE the Dow started its decline. So, MED was certainly NOT a strong stock.  Its DMI turned negative on 19 September, when the stock opened at 226 and closed at 208.  And even though the stock was leading the market lower, with a negative DMI, it was still at the top of his lists.  Hmmm?  Anyhow, as the overall market started to recover in October, MED never did.  It just continued to trade sideways, forming the ‘Blade’ of a major negative Hockey Stick pattern.  But still, the stock remained at the top of his recommended lists. 

Then on Wednesday, 7 November, all hell broke loose.  MED dropped 61 points to 153.31 which brought on yesterday’s letter of apology.  Hmmm?  This is what happens when subscribers buy newsletters that highlight recommended stocks.  They let the writer pick the stocks for them.   No!!!!  We don’t do this.  We teach you patterns and indicators, so you can evaluate stocks on your own.  Heck, any student of mine would have seen that MED had formed a negative Three Highs to a Top pattern in the months preceding the September decline.  They would have known what to do when the DMI turned negative.  Then once they saw the stock trade sideways for almost two months, they would have recognized the sideways action as the ‘Blade’ of a negative Hockey Stick Pattern, a pattern that projected a decline to the 150+ level.  Just by looking at the stock, my students would have known that MED was a poor choice, even though it was the top recommendation of one of the most popular newsletter writers in the world.  So today, I’m wondering how many people suffered the needless loss caused by MED.  The 48 percent loss has certainly impacted the portfolios of many people throughout the country.  Portfolios that were established to fund retirements, pay for a child’s education or build a future home.  But the sad part about it all is that despite the newsletter writer’s apology, MED remains at the top of his recommended list even though the DMI remains negative.

Gold traded sideways yesterday, causing the Bollinger Bands on GLD’s daily chart to continue to narrow.  Once the decline in equities begins, gold should start to move higher.  Gold and the miners are still on a neutral signal.  The 2-period RSI on GLD remains oversold but has fallen to 11.1 with No Trend in place.  So, given the extreme oversold conditions, I’ll be watching for a rally that could signal the start of Wave 3 up.

That’s what I’m doing,

h

Market Signals for

11-09-2018

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
The Creation of Waves and Trends
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