Professor’s Comments February 14, 2018
Posted by OMS at February 14th, 2018
The markets traded sideways for most of the day after falling at the open. The Dow finished up 39 points, closing at 24,640. The NASDAQ and SPX were up 32 and 7 points, respectively. Volume on the NYSE was EXTREMELY low, coming in at 74 percent of its 10-day average. Light volume declines are usually buying opportunities. There were 21 new highs and 55 new lows.
Yesterday’s early decline was the pullback I expected after Monday’s 410-point rally. The sideways trading action formed a small ‘Blade’ on Monday’s large ‘stick’. So now that the market has rested for a day, the rally should continue.
Remember, Hockey Sticks are continuation patterns. Prices leave the pattern in the direction they entered the pattern, and, in this case, the move should be up.
Yesterday I talked about two scenarios for the Dow; one positive and one negative. However, the key point in each scenario was that the market would rally. The differences between the two was in the shape of the rally, and how high each would get. The Bullish scenario would see the Dow rally to the 28,000 level in five choppy waves. The Bearish scenario would have the Dow rally to about 26,000 in an a-b-c move. Yesterday’s early decline appeared to be wave ‘b’ of the Bearish scenario, but we’ll need to see how the next rally, wave ‘c’ up, plays out before I become Bearish.
A lot will depend on the indicators, and after yesterday’s session, a few are starting to turn positive. My combination VTI-volume indicator on the Dow turned positive generating a Buy Signal. The Money Flow indicator (Coach) also turned positive. If the market rallies today, like I expect, more of the cockpit indicators should start to turn positive.
Because of this, I established a few long positions yesterday in UDOW. UDOW is a highly leveraged ETF that I sometimes use to trade the Dow on a short-term basis. It’s way too volatile a trading vehicle for a steady diet, but when I believe a positive short-term up move is at hand, I buy a few shares. It’s nothing for this ETF to move several points in a day. So when the Dow fell to 24,421 yesterday, (my target for yesterday’s wave ‘b’ decline was 24,500) I took a chance.
We’ll see what happens today.
Yesterday’s Sector Ratio remained at 22-2 negative. The two Strongest sectors are Computers and Healthcare.
The Top 5 Weakest Sectors continue to be the Autos, Utilities, Real Estate, Service, and Insurance. However, these sectors are NOT the ones I’m interested in now. If the market rallies like I expect, the Sectors near the bottom on the Weak List should start to move onto the Strong Lost, joining the Computers and Healthcare. These sectors include, Banking, Cap Equipment, Media, Material (gold), and Consumer Products. For now, I’m going to avoid the interest rate sensitive sectors and limit my trades to Healthcare, Computers, and stocks and ETFs in the Cap Equipment and Consumer Products sectors. The Banks are an interesting choice here, because while they should benefit from rising interest rates, they could be hurt by a lack of borrowing. I’m going to wait until I see the Banks move to the strong list before buying.
Gold and most mining stocks rose slightly yesterday. GLD finished up 0.71 cents at 126.08. My combination VTI-volume indicator on GLD has come off its Sell Signal and is now just shy of generating a Buy.
That’s what I’m doing.
h
Market Signals for
02-14-2018
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | POS |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
SUM IND | NEG |
VTI | POS |
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