Professor’s Comments December 12, 2019
Posted by OMS at December 12th, 2019
The markets fell early yesterday and then rallied to finish slightly higher. The choppy trading was NOT impulsive, which means that the Wave 2 up probably needs another rally leg before it completes causing prices to push slightly higher. The Dow finished with a gain of 29 points, closing at 27,911. The NASDAQ and SPX were up 38 and 9 points, respectively. Volume on the NYSE was moderate, coming in at 99 percent of its 10-day moving average. There were 116 new highs and 16 new lows.
Yesterday’s down-up action appeared to be associated with a small sideways triangle that has been forming for the past week. Triangles are usually seen in wave 4, which means that once complete, probably in another few days, there could be a ‘Santa Rally’ for wave 5 up to complete Wave 2 up. With mostly positive indicators on the cockpit and a strong Sector Ratio, the odds for another rally leg have increased. I wouldn’t get too excited about this ‘potential’ rally, because I don’t see it moving much above the 27 November high of 28,175, if it does happen. At this point, I’d be more concerned about what will happen after the rally completes, as the next leg down will likely drop the Dow back down to the 26,600 level and then significantly lower after that.
BTW, even though the odds are increasing for a rally after the small Bullish triangle completes, a break below 27,550 would completely blow up this Bullish triangle pattern and any ‘Santa Rally’. Pay attention to the 27,550 level now.
The Dow, SPY, and Russell 2K are on Buy Signals. The NASDAQ is currently Neutral, with its last timing signal being a Buy. However, because I can now count five complete waves in the Major Pattern we have been trading for months (an Ending Diagonal Pattern) the signals could change to negative in a heartbeat.
The markets remain at a critical point in their patterns, showing negative divergences and sentiment readings that suggest they could begin to change direction in the days ahead.
The Dean’s List and Tide remain Positive.
The Sector Ratio increased to 22-2 positive after Wednesday’s session. Seeing the Ratio increase with mostly positive indicators on the cockpit caused the Model to exit it’s ‘trial’ position in DXD. The Strongest Sectors were Healthcare, Retail, Service, PharmaBio, and Semiconductors. The two weak sectors were Media and Foods.
Gold (GLD) moved to a Buy Signal yesterday after GLD rose 0.95 cents to 138.92. For the past few weeks GLD has been trading in a very narrow range causing its Bollinger Bands to narrow. Narrow Bands usually mean that a Big Move is coming, so with yesterday’s change in signal, gold could be starting Wave 5 up. Because of this, the Model will be looking for entry points to add to its current holding in GDX.
Bonds (TMF) rose 0.67 cents yesterday to 28.42. Bonds remain on a Neutral Signal with a pattern that can go either way, up or down. At this point, Bonds could be finishing a small wave 2 up. IF this is the case, they should begin to resume their Wave 3 down pushing interest rates higher. On the other hand, Bonds could also be nearing completion of a Major Wave 2 down pattern, which could lead to significantly higher Bond prices. With an unclear pattern and a Neutral Timing Signal, I’m still on the sidelines with Bonds. BTW, if equities begin to push higher in the weeks ahead, it will likely put pressure on Bond prices. However, once Wave 2 up in equities completes, Bonds will likely be viewed as a ‘safe haven’ causing Bond prices to move higher. So for now, the better bet in Bonds would be to wait for slightly lower prices, but then look for Major Wave 2 down to complete and trade the potential Major Wave 3 up.
UCO (crude oil ETF) pulled back slightly yesterday after attempting a breakout on Tuesday. The ETF remains on a Buy Signal as it continues to battle resistance of the 200-day moving average near the 19 level. Once this resistance is broken, UCO should begin to chop higher as wave ‘c’ up unfolds.
The Model sold its ‘trial’ position in DXD yesterday at 23.72. It continues to hold 300 shares of SQQQ, 1,500 shares of UCO, 500 shares of GDX with a cash balance of $79.442. The Model will be looking to invest a good portion of its cash in inverse index ETFs IF the Dow begins to move closer to or above the 28,000 level.
I continue to believe that positions established in inverse index ETFs from current or higher levels on the Dow will prove to be big winners in the months ahead once Wave 2 up completes. My initial target for Wave 3 down remains at the 26,600 level. Significantly lower after all five waves are complete, likely back down to the December 2018 low of 21,713.
That’s what I’m doing.
h
Market Signals for
12-12-2019
DMI (DIA) | POS |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 11 Dec 2019 |
NASDAQ | NEU | 09 Dec 2019 |
GOLD | POS | 11 Dec 2019 |
U.S. DOLLAR | NEG | 09 Dec 2019 |
BONDS | NEU | 02 Dec 2019 |
CRUDE OIL | POS | 04 Dec 2019 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments