Professor’s Comments February 1, 2018
Posted by OMS at February 1st, 2018
The markets bounced from oversold conditions yesterday as expected. The Dow finished up 73 points, at 26,149. The large cap index was up over 260 points during the day, retracing a good portion of the 363 points it lost the previous day. The NASDAQ and SPX rose 9 and 1 point, respectively. Volume on the NYSE was moderate, coming in at 110 percent of its 10-day average. There were 91 new highs and 114 new lows.
After yesterday’s trading action, it’s still not clear whether yesterday’s early rally and late decline was part of an a-b-c move or a developing triangle for wave 4 down. All we know right now is that the market is starting some type of wave 4 correction, as The Tide remains negative.
My combination VTI-volume indicator remains neutral. But the 2-period RSI is still slightly oversold, so the market will likely rally early this morning. What happens later will likely determine the type of correction. If the Dow starts to break below 26,000, the odds are higher that an a-b-c mode is developing, with yesterday’s early retracement being all or part the ‘b’ wave. If this is what’s happening, the Dow should rise to about 26,400+ then drop to the 25,700+/- level as wave ‘c’ down of wave 4 down unfolds.
Again, if this happens, I would view the decline as a significant buying opportunity.
At this point, I still do NOT see anything to change my view that the trading action of the past few days is anything but a normal correction from overbought conditions.
The Sector Ratio increased to 23-1 positive. That’s an EXTREMELY strong Ratio! The Strongest Sectors continue to be Healthcare, FoodDrug, Retail, Cap Equipment, and Specialty Banks. The only Weak Sector was the Utilities.
The Auto Sector has a large negative Delta Trend Score yesterday of -113. Large changes in Trend Scores like the one we saw yesterday often lead to additional declines. If the market starts to head lower, I would expect stocks in the Auto Sector to lead the market down.
Also, stocks on the small cap Russell 2K are extremely close to generating a Sell Signal from my VTI-volume indicator. As I mentioned previously, the small cap stocks are not benefiting as much from the changes in tax reform and the lower dollar as their bigger brothers. As of last night, IWM and UWM, the positive ETFs for the Russell 2K were still on the Dean’s List, keeping the List positive. If IWM and UWM fall off the List and are replaced by TWM, I’ll buy a few shares. Remember, The Tide is negative, so all I’m doing now is waiting for a few inverse index ETFs to appear before buying. TWM could be the first.
BTW, even though I believe the Dow will rally to new highs once the current correction wave 4 completes, this does not have to be the case for the small cap stocks. The small cap stocks have a slightly different pattern than the Dow and SPX. Their correction could be larger than the other indexes.
Gold and most mining stocks roses yesterday from oversold conditions. GLD rose 0.85 cents to 127.69. GDX finished up 0.30 cents at to 23.75. I sold my shares of GDX for a nice profit when the 2-period RSI on the short- term bars became overbought. It was another successful Rifle Trade.
The reason I pulled the trigger on GDX yesterday was because gold is no longer oversold and my combination VTI-volume indicator is neutral. In other words, gold could move in either direction from current levels. There is NO short-term bias. So, without a bias, I felt it was better to move to the sidelines. I never like to have my money at risk without some type of bias in the indicators working for it. If the indicators on gold change and start to develop a positive bias, I’ll let you know. It appears that gold is in the process of correcting within a rising trend.
That’s what I’m doing,
h
Market Signals for
02-01-2018
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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