Professor’s Comments April 20, 2018

Posted by OMS  at April 20th, 2018

The markets declined as expected yesterday.  The Dow finished down 83 points at 24,665.  The NASDAQ and SPX were down 57 and 16 points, respectively. Volume on the NYSE was moderate, coming in at 107 percent of its 10-day moving average.  There were 78 new highs and 95 new lows.

Yesterday’s decline appeared to be corrective, which means it was likely part of sub-wave 2 down in wave ‘c’ up within a five-wave zig-zag pattern for Major Wave 2 up.

The decline was likely the Big Move predicted by Tuesday’s small change signal in the A-D oscillator.

Yesterday’s low of 24,557 was the first test of the 50-day moving average for sub-wave 2 down, so it’s likely the Dow will re-test this low again before moving higher.  Remember, wave 2s usually have 2 lows, so IF the market declines early today, I would watch the 24,550 level for buying opportunities.

Right now, with the Dow and SPX trading above their 50-day moving averages with mostly positive indicators, I must favor the Bullish zig-zag scenario for Wave 2 up.  However, IF the Dow starts to break below 24,500, it will cause me to reconsider my Bullish outlook.  That’s because a Bearish Ending Diagonal Pattern has also been forming on the Dow since 1 April.  Ending Diagonals have downside targets near where they began, so If the Dow breaks below 24,500, it could fall back to the 23,345 level.  This would be a huge negative for the markets as it would mean another (third) re-test of the 200 is in the cards.  Markets usually do not hold up to a third re-test of a moving average.  So be EXTREMELY careful if the Dow starts to move below 24,500 in the days ahead.

The Sector Ratio weakened slightly after yesterday’s trading.  The Ratio now stands at 15-9 positive.  The Strong Sector List was led by Energy, Material, Technology, Computers, and Utilities. The Semiconductor Sector is still on the Strong List, but near the bottom.  IF sub-wave 2 down is underway, it would not be unusual for the semis to lead the pullback as they are one of the more sensitive sectors.  But as long as other technology related sectors remain high on the Strong Sector List, I wouldn’t worry about the semis.  I still believe that IF this market is going to move higher, technology, including the semis, will lead the way.

The stocks I’ll be looking to trade today include NBR, DVN, and SLB.  All these energy related issues have VTIs in the Trend Mode, so I’d be especially interested in them on pullbacks.  I’m also be looking to buy Las Vegas Sands (LVS).  LVS could be close to breaking out of a large consolidation triangle that started on 29 January. A move above Wednesday’s high of 75.58 would likely push its VTI, currently at 61, into the Trend Mode.  I’ll be watching all the above stocks on the short-term bars for buying opportunities.

I’ll continue to avoid Real Estate, Autos, Banks, Food Drug, and Retail.  Stocks in these sectors continue to lead the Weak Sector List.  IF I owned them (which I don’t), I’d use any rally to exit the positions. I believe stocks in these sectors will lead the market lower on the next decline.

Gold and most mining stocks fell slightly yesterday. My combination VTI-volume indicator on gold remains on a Buy Signal.  Yesterday the VTI portion of the indicator on GLD had a reading of 69.6, so GLD is just shy of entering the Up-Trend Mode.  The VTI-volume indicator on GDX is already in the Up-Trend Mode.  I bought a Basic Position in GDX yesterday and will continue to add to this position on any pullback.  Gold (the metal) closed at 1,348 yesterday.  The pattern suggests it could reach the 1,600 level within the next 2 years.  If the market starts to decline after the current rally completes in late May-early June as I expect, gold could be a nice place to be. BTW, the Material Sector, which includes gold and mining stocks, is currently #2 on the Strong Sector List. That’s why I’m buying positions in the miners now.

That’s what I’m doing,

h

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04-20-2018

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