Professor’s Comments October 15, 2019
Posted by OMS at October 15th, 2019
The markets fell slightly yesterday on light volume. The Dow finished with a loss of 29 points at 26,787. The NASDAQ and SPX were down 8 and 4 points, respectively. Volume on the NYSE was only 77 percent of its 10-day moving average. There were 74 new highs and 47 new lows.
There were NO CHANGES to the market timing indicators after yesterday’s session. The timing indicators on the on the Dow, SPX, and Russell 2K remain Positive. The timing indicator on the NASDAQ remains Negative.
The Daily DMI on the NASDAQ is positive while the same indicator on the Dow remains negative.
The Dean’s List remains Positive; however, The Tide has turned Neutral as two of the four breadth indicators that make up The Tide turned negative after yesterday’s session.
In last night’s Class, I showed students how I use The Tide in combination with the Dean’s List to choose ETFs whenever there is a change in The Tide. It’s a very effective technique keeps me in the strongest ETFs during any sustained move up or down. I simply wait for a Tide change and then look to buy the strongest domestic ETFs on the Dean’s List. Remember, The Tide only measures the breadth on the NYSE, so I’m not interested in ETFs from Europe or Asia or currencies. I’m only interested in ETFs containing U.S. stocks. Right now, The Tide is neutral, so it’s telling me to be patient.
The market remains in a very fragile condition. With mostly positive indicators on the cockpit, the odds now favor a continuation of Friday’s rally before a major top is in. That top could occur within the next few weeks.
From a pattern perspective, Friday’s move above 26,800 means that the triangle pattern that has been forming since early summer is not probably complete and a rise to the 27,500-27,700 level is likely. On the other hand. it’s also possible that Friday’s rally could be a head fake, and the Dow will not rise to new highs in the weeks ahead. With mixed signals on the cockpit for the Dow and NASDAQ, the odds for a rally are only slightly higher than those for a decline. Maybe 60-40.
The reason I say this is because the rally off the 3 October low of 25,744 was a five wave a-b-c or zig-zag pattern. Zig-Zags or a-b-c patterns are usually patterns associated with a corrective wave structure, in this case part of final wave ‘c’ of Wave ‘D’ up. So even though the breadth and volume numbers were strong on Friday, it’s still possible that Friday’s rally was the end of a retracement wave 2 up. If this is the case, the market should begin a significant decline within the next day or so. The decline should be impulsive, because it should be the start of Wave 3 down. IF it’s not impulsive, the odds will favor the Bullish scenario.
Friday’s late 200 point pullback is the thing that is giving me pause. By giving back those 200 points late Friday, the Dow formed a “Shooting Star’ candlestick pattern. These types of candles are usually found at the end of a major rally, not at the beginning. So even though the indicators are mostly positive after Friday’s session, the five wave zig-zag topped by a ‘Shooting Star’ is the reason I’m cautious.
Bottom Line: The markets should remain extremely volatile in the weeks ahead. News on the trade deal with China, a war in Turkey, talk on impeachment, and Brexit are just some of the things that will keep Wall Street occupied. But despite the EXTREME volatility, the odds remain better than even that the Dow will move above the July high of 27,399 and top somewhere between 27,500-27,700 level during the next few weeks. The rally could extend closer to the 28,000 level, but that would be pushing it.
The Sector Ratio strengthened to 15-9 Positive after Monday’s session. The Strongest Sectors were Service, Consumer Products, Retail, Food Drugs, and Semiconductors. The Weak Sector List was led by Energy, Media, Leisure, Utilities, and Healthcare.
Gold (GLD) rose 0.56 cents to 140.59. The rise did not change the signal on gold. It remains on a Sell Signal. What is not clear about gold now is whether the metal is in the process of completing wave 4 down within Wave 3 up or finishing wave ‘a’ up within a larger a-b-c pattern for Wave 4. The next few trading days should help clarify the technical picture. Until then, I’ll remain on the sidelines. It’s becoming more likely that Wave 5 up in gold won’t begin until equities top.
Bonds are still showing mixed signals, so I’m still on the sidelines waiting for a signal change. Bonds are also waiting to see what happens with equities.
There were NO CHANGES to the Model after yesterday’s session. The Model remains 100 percent invested in cash ($125,725).
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,
Market Signals for
10-08-2019
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 01 Oct 2019 |
NASDAQ | NEG | 20 Sep 2019 |
GOLD | NEG | 07 Oct 2019 |
U.S. DOLLAR | NEU | 02 Oct 2019 |
BONDS | NEU | 18 Sep 2019 |
CRUDE OIL | NEG | 26 Sep 2019 |
Category: Professor's Comments