Professor’s Comments

Posted by OMS  at August 1st, 2018

The markets staged a solid rally yesterday setting up an interesting short-term pattern.  The Dow rose 108 points, closing at 25,415.  The NASDAQ and SPX rose 42 and 14 points, respectively.  Volume on the NYSE was heavy, coming in at 111 percent of its 10-day moving average.  There were 76 new highs and 36 new lows. 

Not much changed with the indicators after yesterday’s session.  They’re still mostly positive.  Yesterday’s rally to the 2824 level on the SPX appeared to be sub-wave ‘b’ of the corrective a-b-c sequence I mentioned in yesterday’s Comments.  If this is the case, the SPX should decline back to the 2810 level during the next day or so.

That’s where things will start to get interesting.  The reason I say this is because the markets should start a significant rally from that level.  But depending on how that rally unfolds will determine the next major move in the markets. 

Here’s what the patterns suggest IF the SPX declines to the 2810 level: 

Short-Term Bearish Scenario:  The SPX should follow the decline with a rally to the 2825-2830 level and then decline to about 2780 or less to complete Wave 2. 

Short-Term Bullish Scenario:  Again, the SPX declines to about 2810 and then rallies to about 2840 to complete Wave 3 up.  After this there would be a small Wave 4 pullback and then a final rally to complete Wave 5 of Major Wave 5 up.

Bottom Line:  We’re at a point in the pattern where there could be some choppy trading ahead.  The patterns and indicators still suggest higher prices, but the pressure from the Fed’s unwinding program, effectively raising interest rates, and China are starting to have their effect.  Since both short-term Scenarios appear to support a rally from the 2810+/- level, I will be looking for entry points close to that level for a rally to about 2825-2830 or higher.  Then once I see how the indicators react to the rally, I’ll decide whether to stick around or exit my long positions.  I don’t want to be part of any decline IF Wave 2 is not complete.

As of yesterday, the Dow is up 1,058 points since my combination VTI-volume indicator generated its Buy Signal.  It’s still on a Buy with the VTI portion of the indicator in the Trend Mode.  Because of this, I will be looking to go long IF the market pulls back as suggested by the patterns. 

The Sector Ratio rose to 15-9 positive after yesterday’s session.  Again, this perfectly normal IF we’re in a Wave 2 of the pattern.   As long as the Sector Ration remains positive, it’s likely that prices on the indexes will continue to push higher.  IF the ratio turns negative, I’ll start to worry.  Not now.

I’m still concerned about is the lack of leadership in the sectors.  The Strong List continues to be dominated by defensive sectors like Transportation, Food Drugs, PharmaBio, Consumer Products, and Service.  Hopefully this will change during the next week or so once the a-b-c correction completes.   Cap Goods and Semiconductors are on the Strong List near the bottom.  Caterpillar (CAT) made a nice move yesterday, gaining over 4 points.  With its narrow Bollinger Bands, CAT will be one of the stocks I’ll be watching during the next few weeks.

The Weak Sector List was led by Leisure, Energy, Autos, Technology and Computers.  I continue to avoid these sectors.  

My VTI-volume indicator on gold and silver turned neutral yesterday as the volume portion of the indicator turned positive.  Now I just need to see a momentum shift. The patterns on gold and silver continue to suggest a bottom is near. Pay attention to the indicators. 

That’s what I’m doing,

h

Market Signals for

08-01-2018

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