Professor’s Comments August 24, 2018

Posted by OMS  at August 24th, 2018

The markets continued their pull back from overbought conditions yesterday.  The Dow fell 77 points, closing at 25,657.  The NASDAQ and SPX fell 11 and 5 points, respectively.  Volume on the NYSE was moderate, as it usually is going into late August (the summer doldrums) coming in at 90 percent of its 10-day moving average.  There were 93 new highs and 42 new lows.

There were no changes to the VTI-volume indicator on the Dow and NASDAQ. Both markets remain on Buy Signals.  All the major indexes are now on VTI-volume Buy Signals. 

Crude Oil generated a VTI-volume Buy Signal yesterday, a day after the Energy Sector posted a large increase in its Delta Trend Score.  However, DUG, the inverse ETF for the Oil and Gas, remains on the Dean’s List.  I usually like to trade energy when DIG replaces DUG on the List but seeing how good the VTI-volume indicator has been, I’ll have to start watching the sector closely.  My two favorite energy stocks are CVX and Marathon.  Marathon is currently on a VTI-volume Buy Signal; CVX is not. It’s still on a Sell Signal with the indicator in the Down Trend mode.  Besides, it’s August and the Energy Sector is still near the top of the Weak Sector List, so I can’t get too excited about seeing the signal change in crude oil.  I believe there are better places to be.

Yesterday’s Sector Ratio remained at 15-9 positive.  The major thing I saw in the sectors was that Cap Goods, Banks, Financials, and Technology all strengthened their RS ratings while the defensive sectors started to weaken.  This means that a few of the institutions are starting to become more aggressive with their purchases.  The Strong List is still being led by FoodDrugs, Telecoms, Transportation, Household Products, and PharmaBio.  But at least Food and Consumer Products have been chased out of the top spots.  The DTS on the Foods sector was -88, so the sector could be heading a lot lower. Now if only two or three of the ‘aggressive’ sectors can move into the top 5 sectors, we could get a nice rally going.  The overall pattern continues to suggest higher prices, especially on the NASDAQ and Russell 2K.

The Weak Sector List was led by Material, Energy, Autos, Semiconductors and Healthcare.  The Semiconductor Sector had a large increase in Delta Trend Score (+110), so something could be happening there. One of my favorite stocks in the sector, Micron Technology (MU), is getting close to generating a Buy Signal. But close only counts in horse shoes, hand grenades, and atom bombs. I need to see the Semis back on the Strong List before I’m a buyer.

Remember, seeing a sector on the Strong List is nice. But seeing the sector in the top 5 sectors tells me the sector is leading the market higher. When the market starts to move higher, the top 5 sectors are where you want to be.

BTW, one of the reasons I’m still Bullish is because the environment is still very favorable for equities.  Students should not forget that U.S. companies received a huge tax cut earlier this year, which some estimate will save them over $600 Billion in the next 10 years.  This tax cut together with the opportunity to repatriate a good portion of the $2.6 Trillion they have stashed overseas at 15 percent could do a lot to overcome the Fed’s unwinding program.  BTW, the last time we saw a ‘repatriation’ program was under Bush 1.  The interesting thing about it was that most of the cash brought back went into share buy back programs, not into creating jobs.  IF this happens again, it could continue to drive stock prices even higher.  If the Money Flow indicators remain positive, it means that money is NOT leaving the market.  And any new money companies receive, either through earnings or repatriation, will likely go into dividends or share buybacks.  Both of which are positive for the equity markets.

Gold pulled back from its overbought condition as expected.  I have my ‘trial’ position, so I’m just waiting for the VTI-volume indicator to generate a Buy Signal before buying more.  I’m just being patient.

That’s what I’m doing,

h

Market Signals for

08-24-2018

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08-24-2018

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