Professor’s Comments August 2, 2018

Posted by OMS  at August 2nd, 2018

The markets were mixed yesterday after the Fed decided to leave interest rates unchanged.  The Dow closed down 81 points at 25,334 after being up 73 points early in the session for (another typical Fed day early rally).  The NASDAQ finished up 36 points; the SPX was down 3.  Volume on the NYSE was heavy again, coming in at 111 percent of its 10-day moving average.  There were 74 new highs and 56 new lows. 

Yesterday’s early rally to the 2826 level on the SPX appeared to be the completion of sub-wave ‘b’ of the corrective a-b-c sequence for Wave 2.   In yesterday’s Comments, I said the SPX should top near the 2825-2830 level IF the Bearish Scenario, a complex Wave 2, was occurring.  So, by pulling back after reaching 2826, it appears that wave ‘c’ down of Wave 2 down is underway.  It’s likely the SPX will now trade down to the 2780 level or less before Wave 2 down completes. 

BTW, I exited my long positions yesterday near the 2825 level and will now look for entry points closer to the 2780 level.  

The Sector Ratio remained at 15-9 positive after yesterday’s session.  Again, this perfectly normal IF we’re in Wave 2 of the five wave pattern.  I would expect the Ratio to decline a bit as wave ’c’ down of Wave 2 down continues to develop.  However, once Wave 2 down completes, the Sector Ratio should start to pick up.  This is where I would expect to see a leadership change from the defensive sectors that have been dominating the List for the past few weeks to the more aggressive sectors.

As I’ve mentioned before, I’m concerned about the lack of leadership in the current market.  I don’t see how the Dow can re-test the January highs without Technology, Semiconductors, Cap Goods, Computers, Financials and the Banks near the top of the Strong List.  Right now, 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 remain on the Strong List, but they’re near the bottom.  They need to move up.  I also want to see the Banks and Financials on the List.  They’re not there yet, and without them, the market will likely remain weak.

BTW, the large institutional investors (Big Money) don’t buy FoodDrug and Consumer Product companies because they believe the market is going higher. They buy them to protect against short-term declines. Most Mutual Funds MUST keep about 95 percent of their money invested in equities at all times, so by seeing which sectors are on the Strong List, you can get a feeling for how the institutions view the market.  Right now, they’re defensive.  Look for this to change once Wave 2 down completes.

The Weak Sector List continues to be led by Leisure, Autos, Material, Financials, and Technology.  The Financials and Technology Sectors need to move to the strong List, before the next rally phase of the market begins.    

The volume portion of my combination VTI-volume indicator for gold and silver turned negative after yesterday’s session, so the indicator is back on a Sell Signal.  The indicator generated its first Sell Signal on 15 June with GLD at 121.34.  Yesterday GLD closed at 115.14. It still appears that gold and silver are approaching a major bottom, but I’m waiting for the indicator to turn positive before I buy the metals.  

That’s what I’m doing,

h

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08-02-2018

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