Professor’s Comments August 20, 2019
Posted by OMS at August 20th, 2019
The markets continued to rally yesterday on light volume. The Dow finished with a gain of 250 points, closing at 26,136. The NASDAQ and SPX were up 107 and 35 points, respectively. Volume on the NYSE was only 83 percent of its 10-day moving average. There were 187 new highs and 21 new lows.
Germany’s central bank issued a gloomy report yesterday that the country may be entering a recession. If this happens, it will have major repercussions for the rest of the Eurozone and the United States. Since I started talking about Germany a few months ago when the indicators turned negative, EWG, the country ETF for Germany, has fallen form a high of 28.95 to a low of 25.25. I mention this today because EWG remains on a Weekly Sell Signal with a pattern that projects significantly lower prices. BTW, most of the other larger European country ETFs I follow are also on longer-term Sell Signals.
Yesterday was the third consecutive day that volume has declined as stocks rallied. Light volume rallies are usually a strong sign that the rally is corrective within a larger move down. From a pattern perspective, it still appears that the rally is likely wave ’c’ up of Wave 2 up within Major Wave 1 down of a new Bear Market. Once this corrective wave completes, Wave 3 within Major Wave 1 down should begin.
However, because yesterday’s rally exceeded my original target of 25,800+ by 300 points, I must now consider an alternate scenario for Wave 2 up. It’s now possible that the Dow could decline to the 25,800 during the next week or so level for wave ‘b’ down and then rise to about 26,600 to complete wave ‘c’ of Wave 2 up. IF this complex pattern develops, it should take another 2-3 weeks to complete before the market resumes its decline after Labor Day.
One of the ways we’ll know if the alternate Wave 2 scenario is developing is by watching the next pullback. If the decline toward 25,800 is choppy, it’s likely that it’s wave ‘b’ down with wave ‘c’ up of Wave 2 next. If the decline is impulsive, then its more likely that Wave 3 down of Major Wave 1 down is starting.
The market timing indicator on the Dow turned Neutral. The timing indicators for the NASDAQ, SPX, and Russel 2K remain on Sell Signals.
The Tide remains Neutral and the Dean’s List remains Negative.
Yesterday’s rally also caused IYT, the transportation ETF, to rally to the 183.89 level before pulling back to close at 181.62. The 2-period RSI on IYT closed with an overbought reading of 77.7, so without a trend in place, the trannies should begin to pullback. Students should continue to watch the transports during this pullback, especially if they start to test the 175 level. A break below 175 level would confirm that Wave 3 down in equities has started. BTW. I found it interesting that the Money Flow indicator fell during yesterday’s rally. This tells me the Big Boys were using the rally to dump stocks.
Gold (GLD) dropped pulled back to my target level of 140+ yesterday, finishing down 1.57 points at 141.11. The pullback was enough to cause the Model to buy a few shares of UGL. Once this pullback completes, I would expect gold to rally toward the 1,600 -1,650 level before it takes a significant pause. I continue to see the metal as the best bet on the Board.
The Sector Ratio remained at 5-19 Negative after yesterday’s session. The Strong Sector List was led by Household Products, Food Drugs, Telecoms, Insurance, and Semiconductors.
The Weak Sector List was led by Energy, Retail, Real Estate, Banks, and Autos.
Model Portfolio: Just before yesterday’s close, the Model re-purchased the 325 shares of UGL it sold last week bringing its total back up to 650 shares. The Model also owns 1,200 shares of DXD.
After yesterday’s session, the Model is up 27.8 percent which translates to an annualized gain of 66.4 percent. Current cash balance is $63,365.
The Model Portfolio is being shown for educational purposed only. The Buy/Sell actions in the Model Portfolio are made based on technical indicators that can and do change frequently and should NOT be considered as recommendations for trading an actual portfolio. Any gain or loss in the Model Portfolio should not be used to predict future performance of the Model.
That’s what I’m doing,
h
Market Signals for
08-20-2019
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 19 Aug 2019 |
NASDAQ | NEG | 30 Jul 2019 |
GOLD | POS | 01 Aug 2019 |
U.S. DOLLAR | POS | 14 Aug 2019 |
BONDS | POS | 30 Jul 2019 |
CRUDE OIL | NEU | 19 Aug 2019 |
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The Hockey Stick Pattern
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Category: Professor's Comments