Professor’s Comments October 9, 2018
Posted by OMS at October 9th, 2018
The markets were mixed yesterday. The Dow was up 40 points at 26,487. The NASDAQ and SPX finished down 53 and one point, respectively. Volume on the NYSE was moderate, coming in at 100 percent of its 10-day moving average. There were 35 new highs and a whopping 334 new lows.
There were no changes to my market timing indicators for equities. The Dow remains on a Buy Signal that continues to weaken. The NASDAQ remains on a strong Sell Signal. Although I don’t show signals for the RUT and SPX on the cockpit, both indexes are on Sell Signals.
My market timing indicator for gold changed back to neutral after being on a Buy for one day. The likely reason for the flip-flop is the Dollar which had another strong day yesterday. As long as the Dollar remains strong, it’s likely that gold (the metal) will continue its struggle to complete the final waves of its bottoming process. BTW, this not appear to be the case with mining stocks which remain on Buy Signals. As I’ve said before, one of the reasons I’m Bullish on mining stocks now is because they tend to lead the price of the basic metals. So even though we could see lower metal prices during the next few weeks, the price of gold and silver mining stocks should start to firm.
I still have my eye on that Head & Shoulders bottom on NUGT and GDX, watching for a breakout. Again, IF NUGT, a very aggressive mining ETF, can move above last week’s high of 14.41, it would be a very positive move for the miners. I continue to look for opportunities to add to my ‘trial’ shares’ of NUGT and GDX.
My VTI-volume indicator remains negative for Bonds. The same indicator for Crude Oil remains positive.
Let’s talk about Bonds for a minute. If you check the Bond timing indicator on the cockpit, you will see that it turned negative in early September, telling us it was time to exit Bonds. TMF, the Bond ETF, was trading at 18.79 on the day of the signal. Now its down to 15.43. That’s an 18 percent decrease in Bonds in a little more than 5 weeks. Wow! How can this happen? Hmmm? Well, its pretty simple really. The Fed is tightening the money supply. Its not only raising interest rates, its selling off a lot of the financial assets it accumulated since March 2009 when it was trying to stimulate the economy. The Fed is no longer your friend. Now, by selling $50 Billion of assets each month, it’s effectively soaking up money that consumers could use to buy large ticket items like houses, cars, appliances, and yes, even the stock market.
I talk a lot about the stock market in my comments, but if you’re a builder or involved in the real estate market, this Fed selling will have an enormous impact on your business going forward. Fed selling will not only slow down the economy, it has the potential to put it into a significant recession. Homebuilders, like Lennar (LEN), are going to get crushed! LEN is already down 7 points from its early September highs. On 5 September, the date of the Sell Signal on Bonds, LEN was trading at 52.52. Yesterday it closed at 45.44 after reaching a low of 44.53. But that’s not the problem.
If you look a Weekly Chart of LEN, you will see that LEM reached a high of 72.17 in late January. That high on a Weekly chart represents the ‘Head’ of a large Head & Shoulders reversal pattern that has a neckline near the 48 level, which is also where the 200-day moving average is located. So now, LEN (and other homebuilders) are not only below their 200, they’re in a reliable declining pattern that suggests significantly lower prices. BTW, the target for LEN’s H&S pattern is the upper 20’s!
And if fewer new homes are to be built going forward, this will start to impact the sales of appliance and furniture makers. This is how a recession starts. The chart pattern of LEN is a significant warning, and it all has to do with Fed tightening.
The Sector Ratio remained at 10-14 negative after yesterday’s session. The Strong Sector List continues to be dominated by ‘defensive’ sectors like Utilities, FoodDrug, Media, Telecoms, and PharmaBio. There’s not even one technology related sector on the Strong List.
The Weak Sector List continues to be led by Service, Semiconductors, Consumer Products, Leisure, Real Estate and Banks.
Last week, I talked about the 182 level on the QQQ as being a very important support level. That level was broken last Thursday when the Q’s traded down to 181.06. Yesterday the Q’s fell to a low of 176.93 before bouncing to close at 179.05. The large candles that have been forming during the past few days suggest that the decline is not over. And with the VTI-volume indicator on a Sell Signal, the next level of support appears to be the 200-day moving average currently located at the 171 level. I continue to hold my inverse position in SQQQ.
BTW. I continue to focus on shorting the NASDAQ for now. That’s because small cap stocks on the NASDAQ and Russell 2K are getting hurt by a tight money environment more than their large cap brothers on the Dow. Large cap companies received a larger tax cut than the smaller companies, so they are able to self-finance a lot of their short-term funding needs. Until my market timing signal on the Dow turns negative, I will continue to look for shorting opportunities in technology and the smaller caps.
That’s what I’m doing,
h
Market Signals for
10-09-2018
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 04 Oct 2018 |
NASDAQ | NEG-T | 05 Oct 2018 |
GOLD | NEU | 08 Oct 2018 |
U.S. DOLLAR | POS | 03 Oct 2018 |
BONDS | NEG-T | 05 Sep 2018 |
CRUDE OIL | POS-T | 19 Sep 2018 |
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