Professor’s Comments August 30, 2018

Posted by OMS  at August 30th, 2018

The markets continued to rally yesterday as they approach important resistance levels.  The Dow rose 61 points, closing at 26,125. The NASDAQ and SPX were up 80 and 17 points, respectively.  Volume on the NYSE was moderate, coming in at 99 percent of its 10-day moving average.  There were 146 new highs and 35 new lows.

There were no changes to The Professor’s VTI-volume indicator signals for the major equity markets after yesterday’s session.  The VTI portion of the VTI-volume indicator for the Bond market turned negative making the signal Neutral. The U.S. Dollar remains on a Sell Signal.

In yesterday’s Comments I talked about my target for the SPX being near the 2,920-2,930 level.  Yesterday, the SPX traded as high as 2,917, so it’s getting close.  It’s close enough that we need to watch how it performs during the next few days, because any significant pullback could lead to a break of its lower trendline which is currently located near the 2,850 level.  A break of 2,850 would project significantly lower prices as the target for an Ending Diagonal Pattern is where the pattern began.  In the case of the SPX, that’s all the way back to the 2,580 level.  

Right now, my VTI-volume indicator for the SPY is on Buy Signal with the VTI portion of the signal in the Trend Zone.  If the VTI comes out of the Trend Zone, it will turn the indicator Neutral which given the level the SPX is currently trading at, would be cause from concern.  So, we need to pay close attention to the indicator.

Like I’ve said before, the late August – early September period is usually not favorable for the markets.  So, once we get past the usually bullish end-of month/Labor Day Holiday, we’ll need to be on our toes. 

The Sector Ratio fell slightly to 19-5 positive after yesterday’s session.  The Retail and Foods Sectors joined the Service, Material, and Auto Sectors on the Weak List.  I’m not too concerned about this slight increase in the Weak Sector List at this point, because it’s normal for a few Sectors to fall off the Strong List as the overall market moves toward its top. Breadth tends to narrow as fewer and fewer stocks participate in the climb higher, so you need to be more selective.  But IF the Sector Ratio starts to approach 50-50, that would not be a good sign.  And anything less than 50-50 would spell trouble. 

FoodDrugs, Telecoms, Household Products, PharmaBIo, Transportation, and Cap Goods are still the top Sectors with the Banks and Financials dropping a notch in Relative Strength.  The fact that the Banks and Financials declined when the rest of the market was rising yesterday is not a good sign.  The volume portion of the VTI-volume indicator for several of the big banks turned negative yesterday.  So, IF the momentum shifts, the large Banks could generate a Sell Signal.

The Material Sector, which includes gold, is still high on the Weak Sector List.  GLD, the gold ETF remains on a Buy Signal and appears to be forming the ‘Blade’ of a small Hickey Stick Pattern. IF this pattern continues to develop, it could form a base that will enable gold prices to push higher.  I’m still watching gold for opportunities to add to my ‘trial’ positions.  But I’d really like to see the Materials Sector move to the Strong List before doing anything with gold and the miners.

That’s what I’m doing,

h 

Market Signals for

08-29-2018

Professors Major Market

Timing Signals for

08-29-2018

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