Professor’s Comments December 18, 2018

There are several items from yesterday’s trading that we need to pay attention to as we move closer to Wednesday’s Fed announcement.  The first is that while yesterday’s trading action was impulsive, confirming the decline as part of Wave 3 down, the market closed at EXTREMELY oversold levels. The A-D oscillator came in with a reading of -210 and readings below -200 usually lead to a short-term bounce.  Also, yesterday was a massive 13-87 up-down volume day, which is close to a washout 10-90 volume day that we sometimes see near or at market bottoms.  So, given that the Dow traded down to my initial target for Wave 3 down, there’s a good chance the market could bounce from current levels.

Also, IF…and it’s a BIG IF, the Fed announces a change in interest rate policy at Wednesday’s Meeting and does not raise rates, the market could take off in a Santa Rally.  Trading going into Fed announcements is usually positive and with Friday being options expiration, any positive news from the announcement could produce an out-sized move that could last for several days.  What I’m telling you is to be careful if you’re short.

So far, the Dow has dropped 1,491 points since my combination VTI-volume market timing indicator generated its Sell Signal on 6 December.  The large cap index is down 1,250 points in the past week and down 1,004 points in the last two days alone.  But like I always say, markets NEVER go straight down. They go down in waves.  So, with the market EXTREMELY oversold, it would be perfectly natural for some type of corrective wave to come in at this point.  The corrective rally could be a small sub-wave up within Wave 3 down or it could be Wave 4 down within Major Wave 3 down.  If it’s the latter, it could last longer and would likely be the ‘Santa Rally’.

The Sector Ratio came in with a reading of 0-24 last night.  So, all 24 Sectors of the S&P500 are negative.  Students should understand that seeing the ratio at 0-24 negative is an EXTREME event.  And unless this market is totally out of control, which I don’t believe it is, the market usually bounces after extreme readings are reached. I‘m not saying the decline is over…far from it, but markets usually don’t drop 1,000 points in two days without seeing some type of bounce.  

Gold and mining stocks were higher yesterday.  GLD is still resting comfortably on its 200-day moving average as it continues to pull to 50 up closer to the 200.  As the 50 approaches the 200, it should start to push prices above the 200 enabling the 50 to cross above the 200.  A moving average cross would put gold into an uptrend and signal the start Major Wave 3 up.  My market timing indicator for gold and the miners remains on a Buy Signal.  BTW, gold (the metal) is currently trading near the 1,240 level.  If I’m right the next wave up being Major Wave 3 up, gold should be trading above 1,600 by the time it completes.

That’s what I’m doing,

h

Market Signals for

12-18-2018