Professor’s Comments October 31, 2019
Posted by OMS at November 4th, 2019
The markets rallied yesterday after the Fed lowered its benchmark rate by a quarter percent. And while the decline in rates was widely anticipated, what the Fed said about future rate cuts was not. By quietly removing a clause from the post-meeting statement that said it was committed to ‘act as appropriate to sustain the expansion’, the Fed could be signaling that the punch bowl is about to be removed from the party.
The Dow finished with a gain of 115 points, closing at 27,187. The NASDAQ and SPX were up 27 and 10 points, respectively. Volume on the NYSE was 112 percent of its 10-day moving average. There were 152 new highs and 40 new lows. The fact that new lows almost doubled during yesterday’s up session is something to note.
Yesterday’s 115 point rally in the Dow was the Big Move predicted by Tuesday’s small change in the A-D oscillator. There was another small change signal in the A-D oscillator after yesterday’s session, so we need to be on the lookout for another Big Move within the next 1-2 days. Yesterday’s small change signal was the fourth consecutive day the A-D oscillator has closed within 10 points of the previous day’s reading. This significantly increases the odds that a large move is coming.
There were no changes to the market timing indicators after yesterday’s session. The Dow, SPX, NASDAQ, and Russell 2K remain on Buy Signals.
The Dean’s List and the Tide remain Positive.
The market remains in a very fragile condition. If the timing signals remain positive, the odds continue to favor slightly higher prices. However, the 27,307 level still represents stiff resistance for a move to the 27,500 – 27,700 level. Yesterday’s session occurred on weak breadth and low volume (for a Fed Day) which is another sign the market is tiring.
The two scenarios I have been discussing for the past few weeks remain on the Board. My primary scenario is for higher prices toward the12 September high of 27,307. If the Dow can break above 27,300, the odds will favor a move toward 27,500+. Otherwise, IF the Dow moves closer to the 27,300 level, and begins to reverse, the odds will favor the alternate scenario which suggests the top is already in. Right now, I’d only give the primary scenario only about 60-40 odds.
The reason I say this is because yesterday’s rally could still be part of retracement wave 4 up of Wave 1 down that began from the high of 27,112. If this is the case, the 3 October low of 25,743 remains as a potential target for wave 5 down of Wave 1 down. If the market timing indicators turn negative, this alternate scenario will become my primary scenario.
The Sector Ratio fell slightly to 21-3 Positive after yesterday’s session. This minor decline was the first negative sign from the Ratio in weeks. Like I’ve been saying, the Ratio MUST begin to weaken if this market is going to head south. So, we need to pay attention to yesterday’s slight decline. It could be the start of something bigger.
The Strongest Sectors are Service, Retail, Autos, Healthcare and Semiconductors. The three weak sectors were Household Products, Food, and Leisure.
As long as the market timing indicators AND the Sector Ratio remain positive, the odds continue to favor a move toward the September or July highs of 27,307 or 27,399. A change in the timing indicators would negate this Bullish Scenario and likely mean that Wave ‘D’ up has truncated.
Gold (GLD) rose 0.77 cents to 141.02 yesterday. Gold remains on a Buy Signal. It’s still not clear if gold is breaking out of its Wave 4 triangle. If it is, GLD should begin to move above the 25 October high of 142.83 within the next few days. If this happens, it would be a good indication that Wave 5 up is starting which could see gold (the metal) rise to the 1,600-1,650 level.
Bonds (TMF) rose Wednesday causing TBT to lose 0.74 cents to 25.59. The rise in TMF caused Bonds to move to a Neutral Signal. It’s likely that Bonds (TMF) will continue to rally a bit more from current levels as a small wave 2 up unfolds before the next wave of selling resumes. The Model will continue to hold its shares of TBT as long as the timing signal remains Neutral. The developing ‘Blade’ on TBT’s Hockey Stick Pattern continues to suggest higher prices towards the 28+ level.
UCO (crude oil ETF) continued its pull back yesterday falling 0.39 cents to 16.62. As I mentioned on Tuesday, I expect the pullback will continue for another day or so to let the ETF consolidate before attempting a breakout from the triangle. A move above the 18+ level would confirm the breakout, which has a potential target near the 27-28 level.
There were NO CHANGES to the Model after yesterday’s session. The Model continues to hold 1,000 shares of GDX, 300 shares of NUGT, 1,500 shares of UCO, 600 shares of TBT and $51,223 in cash.
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,
h
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments