Professor’s Comments October 18, 2017
Posted by OMS at October 18th, 2017
The markets were mixed yesterday. The Dow finished up 40 points at 22,997 after touching above 23,000. The NASDAQ was flat (-0.34 cents) and SPX was up 2 points. Volume on the NYSE was moderate, coming in at 99 percent of its 10-day average. There were 139 new highs and 26 new lows.
Yesterday’s rally on the Dow was strange because most stocks on the NYSE actually fell during the day. Declining issues outpaced advancers 1,660 to 1,263. The decline in breadth was enough to turn all four of the breadth indicators that make up The Tide negative. So, The Tide has turned negative. Now what? Is the market ready to tank? No. At least not yet. The DMI, the Coach (Money Flow) and the Dean’s List are all still positive. Also, my VTI-volume indicator on the Dow and NASDAQ is still positive. So as long as this indicator is positive, the markets can continue to push higher. If you recall, this indicator turned negative on the Dow Transportation Index three days ago, and each day since, the trannies fell. So, until a few more of the cockpit indicators turn negative, I’m keeping my powder dry. A few weeks ago, I presented a flow chart that depicts the strategy I use to trade the market. This strategy starts with The Tide changing direction and then uses the Sector Report to screen for ETFs and stocks from the Dean’s List and the Member’s Watch List. It is a very effective strategy. Yesterday, even though most stocks on the NYSE were falling, the Strong Sector Report was still showing Semiconductors as the strongest sector, and guess what? Semiconductors were up again yesterday, leading the market higher. If you owned stocks from the weak sectors, like Consumer Goods, Telecoms, and Household Products, odds are your stocks fell, as these weak sectors were down on the day. So, we know that using the Sector Report as a screen for The Tide works. But now we get to the hard part. It’s hard, because we need to exercise a little patience. Right now, even though The Tide has turned negative, the Dean’s List and Member’s Watch List are still positive. All four positive index ETFs are still on the Dean’s List. None of the inverse index ETFs are on the List, so there’s nothing negative (inverse) to buy.. We need to wait a little longer until we see a few more cockpit indicators turn negative and generate Sell Signals. Then once these indicators have turned, and a few inverse index ETFs appear on the Lists, that’s when I’ll start shorting. It’s still a bit early, even with the Dow approaching 23,000. Tuesday’s Sector Report was unchanged. The Sector Ratio remains at 17-7 positive. It’s still way to strong for me to be thinking about the short side. The Strong Sector List continues to be dominated by the Semis, PharmaBio, Cap Equipment, Material and Computers. The Weak Sectors are led by Food, Consumer Products, Media, Retail and Telecoms. Students should continue to watch for a change in the Sector Ratio in the days ahead. If the ratio turns negative, it would be another sign that the top has arrived. BTW, I have NOT seen any big changes in Delta Trend Scores (DTS) from any of the sectors recently. Usually before a Sector starts to weaken, there is a 100+ point change in the DTS, either positive or negative. A large change in DTS is an excellent early indication that something is happening in the Sector. But so far, nothing doing. Also, most of the Trend Scores in the Strong Sectors, except for the Service Sector, are still positive. These Trend Scores will need to turn negative before any significant decline can begin. Like I said, it’s still early. For info, even though the Transportation Sector has generated a VTI-volume Sell Signal, the sector is still supporting a positive Trend Score of 69. The Trend Score has fallen for the past 3 days, but until it turns negative, it’s likely that stocks in the sector will hold their ground a bit longer. Gold (GLD) fell 0.84 cents yesterday to 122.13. My VTI-volume indicator remains neutral. The VTI portion of the indicator is negative, but the volume portion is still slightly positive. If the indicator turns negative, GLD will likely fall to 105 or below. I’m still not doing anything with gold now. Waiting. That’s what I’m doing, h Market Signals for 10-18-2017
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