Professor’s Comments December 19, 2018

Posted by OMS  at December 19th, 2018

The markets rose early, then pulled back giving up a good part of their gains.  The Dow closed 82 points higher at 23,676.  It reached an intraday high of 23,928.  The NASDAQ was up 30 points; the SPX was flat. Volume on the NYSE was moderate, coming in at 108 percent of its 10-day moving average.  There were 3 new highs and 737 new lows.

Yesterday’s early rally and late pullback produced a ‘spinning top’ candlestick pattern where a short body is found in the middle of two long wicks.  When a ‘spinning top’ forms at the end of a down trend, it is a sign of indecision. The pattern often signals a pending reversal as it suggests the sellers are losing momentum. 

If you recall, in Tuesday’s Comments I talked about how the markets could experience a short term rally going into today’s Fed Meeting.  So, yesterday’s bounce was right on track.  Because Fed Days are usually positive right up to the announcement at 2pm, I would expect the rally to continue this morning.  However, what happens after the announcement is anybody’s guess.  If the Fed does not raise interest rates, the market could continue to rally hard for the next few days.  Wall Street would likely call it the Santa Rally, but it’s just a Bear Market rally from extreme oversold conditions. Once the rally completes, the market should resume its down trend.

BTW, IF the rally occurs, it would likely be sub-wave 2 up within Wave 3 down.  The rally could take the Dow back to the 24,100 – 24,200 level, a gain of about 500 points from current levels.  IF this rally occurs, I would view it as an excellent opportunity to establish a few short positions using inverse index ETFs.  My target for the Dow in the next move down is below the 23,000 level, possibly as low as 22,800.  Again, this assumes that the Santa Rally is only sub-wave 2 up.  If the rally goes much beyond 24,200, it’s likely that the correction is forming a larger degree triangle, possibly Wave 4.   This triangle would take longer to develop before all five waves are complete.  But right now, the odds favor the shorter sub-wave 2 scenario.

The reason I say this is because there were no changes to my market timing indicators after yesterday’s session.  With the Dow, NASDAQ, SPX, and RUT all on both Daily and longer-term Weekly Sell Signals, the odds favor the downside.  So, knowing there will be rallies in any Bear Market, the better bet is to fade the rallies.  That’s what I’ll be doing if Santa (with the help of the Fed) takes the Dow back above 24,000.

The Sector Ratio stayed at 0-24 negative.  There were NO sectors on the Strong List.

Gold and mining stocks rose yesterday and remain on Buy Signals. GLD was up 1.09 points at 118.75.  Students should look at how tight the Bollinger Bands on GLD have become.  Is GLD getting ready to squeeze the tube of toothpaste?  If so, it could be the start of Major Wave 3 up.  BTW, have you noticed how many gold and mining stocks are on the Dean’s List now?  They’ve practically taken over the List. 

You won’t see any oil stocks on the List.  Hmmm?  Crude oil got hammered (again) yesterday.  I’m still waiting for the Sell Signal to change.  The best months for trading crude and energy stocks are only 2-3 months away, so you know I’m watching the signal closely.

That’s what I’m doing.

h

P.S.  IF you’re trading the Fed announcement and got long before yesterday’s close, make sure you exit the trade BEFORE 2pm today.  Taking positions BEFORE the announcement is usually a reliable trade.  But what happens after the announcement is a roll of the dice.  Be careful.  

Market Signals for

12-19-2018

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