Professor’s Comments December 11, 2018

Posted by OMS  at December 11th, 2018

The markets fell sharply early Monday, then rallied into the close to recover all its early loses. At one point the Dow was down over 500 points before closing up 34 points at 24,423. The NASDAQ and SPX finished up 51 and 5 points, respectively. Volume on the NYSE was moderate, coming in at 100 percent of its 10-day moving average.  There were 12 new highs and 561 new lows.

In my WSR, I wrote about how the Dow would likely need one more rally leg to complete Wave 2 up before falling in Wave 3 down.  I had been thinking that this wave ‘c’ rally would take the Dow back near the 25,000 level, but after Monday’s early decline, I’m not so sure this will occur.  Simply put, the market is a lot weaker than it appears.  And even if the market rallies, it will be driven mostly by short covering, not by new money coming in. 

The Money Flow indicators on the Dow remain positive, and the volume portion of my VTI-volume indicator, while negative, is heading up.  So, while a rally back to the 24, 800 to 25,000 level is still possible, I wouldn’t count on it. Fact is that we’re in a Bear Market, and any rally from current levels will likely be short-lived.

Monday’s early decline and late rally pretty much destroyed the almost picture perfect wave count for Wave 2 up.  It’s still possible that the markets are in Wave 2 up, mostly because the Money Flow indicators remain positive.  But the Wave count is no longer a simple a-b-c pattern.  IF the Dow doesn’t go into free fall today, then it’s likely that Wave ‘c’ up is developing a complex 3-3-5 pattern for the final wave of Wave 2 up.  All this means is that we’ll have more volatile trading as the market traces out the final moves toward its target. Students should realize that IF this complex 5 wave rally for wave ‘c’ up happens, it will only confirm the move as the final rally leg of Wave 2 up within a Major Bear Market.

Monday’s trading caused the 50-day moving average on the SPX to close below the 200, so now the broad based S&P500 is officially in a Down Trend where it joins the NASDAQ and RUT 2K.  So now, of the four major U.S. indexes, the only one NOT in a Down Trend is the Dow.  BTW, all four of these indexes remain on VTI-volume Sell Signals.

Monday’s Sector Ratio was 2-22 negative.  Real Estate and Leisure were the only sectors on the Strong List.  Both had RS Ratings of zero, so even these two sectors are not that strong.  Seeing a Sector Ratio this weak tells me it’s not one or two sectors that are leading the market lower…..it’s almost all sectors.  This is the type of sector action that usually leads to major declines.  Be careful!

Gold fell slightly yesterday, while the miners were flat.  GLD is now resting on its 200-day moving average after performing a ‘Rope Jump’ last week.  The ‘Jump’ identifies the move as a possible Wave 1 up for gold.  Gold generated a Buy Signal recently, however the miners are still on a Neutral Signal.  But now that gold had performed its ‘Rope Jump’, students should watch for the miners to start moving higher.  If the miners generate a Buy Signal in the days ahead, I’ll be looking for opportunities to buy the metals and mining stocks.  Right now, I’m just scalp trading NUGT on the 5s.

I also bought some SLV yesterday at 13.70 as a longer-term hold.  IF gold starts to move higher, SLV should begin to test its 200-day moving average near 14.40 in the days ahead.  If SLV also performs a ‘Rope Jump’ , I’ll become more aggressive with the metals.

That’s what I’m doing. 

h

Market Signals for

12-11-2018

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