Professor’s Comments April 25, 2018

Posted by OMS  at April 25th, 2018

Once again, the markets showed corrective action on Tuesday, this time rising early and then falling hard into the close. The Dow finished down 425 points at 24,024.   At one point, the Dow was down 617 points, getting as low as 23,829. The NASDAQ and SPX finished down 121 and 36 points, respectively. Volume on the NYSE was heavy, coming in at 117 percent of its 10-day moving average.  There were 74 new highs and 114 new lows.

Yesterday’s early rally and late decline was likely part of Wave ‘’e’ down in the major triangle pattern that has been developing since 26 January.  If this is what’s happening, the Dow likely has more downside to go before Wave ‘e’ down completes.

The markets are EXTREMELY oversold now with NO TREND in place.  The 2-period RSI on the Dow finished with a reading of 2.29.  With a reading like this, the market could start a short-term rally at any time.  However, because the A-D oscillator is only showing a reading of 60.4, which is NOT EXTREMELY oversold, the odds favor a decline, possibly as low as the 23,500 level, to complete Wave ‘e’ down of Major Wave 4 down.  After that, Major Wave 5 up should take the Dow to new highs. BTW, Wave ‘e’ of a triangle usually does NOT reach the lower trend line of the triangle, so it could easily end a few hundred points higher. We’ll see.

The key is that even though the cockpit indicators are negative, they are not showing that yesterday’s decline was the start of a new major down trend. It still appears the market is developing the final fifth wave of a major consolidation triangle. And triangles are continuation patterns, so even though prices could drop further, once the current decline completes, the market should rally to new highs.

I also ran The Professor algorithm last night to see what he’s saying about a new down trend.  He had 25 stocks highlighted, but that’s still only about half of what I would expect to see if a new down trend was starting.  So, given the pattern, indicators, and Lists, I still believe that the markets will continue to develop Wave ‘e’ down of the large triangle for Major Wave 4 that will result in higher prices after it completes. 

The Sector Ratio remained at 13-11 positive, with Energy, Leisure, Telecoms, Technology, and Healthcare being the strongest sectors.  I did notice that the Semis and Financial Sectors were back on the Strong List at the bottom.  The Weak List was led by Real Estate, Autos, Food, Retail, and Cap Equipment.  The U.S. Dollar has been rising since late January causing problems for companies that do a lot of business overseas, so its no surprise to see Cap Equipment back on the Weak List..

Yesterday, Caterpillar (CAT) led the Dow lower dropping over 9 points after it announced positive earnings that beat analysts’ expectations.  Apparently, Wall Street was concerned that a rising dollar and rising materials costs will squeeze profit margins on the heavy equipment manufacturer now that President Trumps has placed tariffs on imported steel.  Yesterday’s decline generated a VTI-volume Sell Signal on CAT.

Gold rose slightly yesterday.  GLD was up 0.61 cents at 126.23.  My combination VTI-volume indicator on GLD is currently on a neutral signal. The VTI is heading down (negative) but the volume portion of the indicator is positive.  The overall pattern on GLD suggests a new Up Trend could be close to starting.  I continue to add shares of GDX and GLD no pullbacks.  If I’m right about the pattern, gold (the metal) could be trading above 1,600 in the next 12-18 months. 

That’s what I’m doing,

h

Market Signals for

04-25-2018

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