Professor’s Comments February 15, 2018
Posted by OMS at February 15th, 2018
After an early decline caused by a poor inflation report, the markets rallied as expected. The Dow finished up 253 points, closing at 24,893. The NASDAQ and SPX were up 170 and 36 points, respectively. Volume on the NYSE was low, coming in at 87 percent of its 10-day average. There were 39 new highs and 80 new lows.
Yesterday’s rally was led by Computers and Healthcare, the two sectors on the Strong Sector List. Stocks like Apple and Microsoft were up 3.03 and 0.98 cents respectively. Cardinal Health finished up 1.65. I expect the rally in the strong sectors to continue as the Dow moves toward the 26,000 level if the rally is part of corrective wave 2 up, higher if it’s the start of impulse wave 5 up.
OK, where are we now? Hmmm?
With the Dow approaching the 24,900 level, my target for wave 2 up is only 1,100 points away. That seems like a lot of Dow points, but given the moves we’ve seen in the past few weeks, its not. So, we need to be on our toes. Remember, we’re guarding against the possibility that the recent decline that dropped the Dow to the 23,360 level could have been Wave 1 down in a new Bear Market. So the current rally could be the retracement wave that precedes the ‘Crash’ wave or wave 3 down. That’s why we need to be on alert.
BTW, in either case, whether its wave 2 up or the start of wave 5 up, both scenarios are terminal. Stocks are NOT going to the moon. Under the Bearish Scenario, the Dow should approach 26,000 before falling. With the Bullish Scenario, the Dow should reach 28,000, maybe higher. But once these waves complete, the Fed’s Unwinding Program will pressure equities for the foreseeable future.
From a timing perspective, I expect the Dow to reach 26,000 within the next month. If the wave 5 Bullish Scenario is developing, the climb toward 28,000 will take a few months longer, probably into May. But for now, let’s just deal with the Bearish Scenario with its target near 26,000.
What do we know?
Well, for starters, the Tide is still negative. The DMIs on the Dow and the NASDAQ-100 (QQQ) are also negative. These indicators MUST be respected. Also, while my VTI-volume indicator on the Dow is currently on a Buy Signal, the VTI portion of the indicator is still below the 50 level, which means the longer-term momentum is still on the negative side. This indicator moved above 50 back on 23 May 2017 and stayed there until 5 February. During this time the Dow rose over 3,400 points. Now the indicator is below 50. So, it’s very possible that the bounce we’re seeing is only correcting the decline that stated on 29 January. I’d feel a lot better about the rally IF the VTI moved above 50. Right now it’s at 30.77.
On the Bullish side, the Dean’s List is positive with positive Money Flow indicators. This tells me that the institutions are putting money into the market again. BTW, the Money Flow indicator (Coach) on the Dow turned negative on 31 January and stayed negative until 13 February when it turned positive. This indicator will be something to watch as the market rallies. If it turns negative, it will be a Major Warning. A negative Money Flow indicator would tell me the Big Boys are starting to bail. Given what we saw the last time this happened, there would be no reason to hold equities this time.
After yesterday’s rally, the Sector Ratio increased to 16-8 negative. Consumer Products, Banks, Media, Material, Cap Equipment, and Retail joined the Computer and Healthcare Sectors on the Strong List. Yesterday I mentioned that these sectors could move to the Strong List if the market rallied. They were all nice places to be yesterday.
The Weak List was led by the Utes, Autos, Real Estate, Service and Insurance Sectors. Yesterday, with the Dow up 253 points, the Utilities Sector was down 17 points. Real Estate was down 7 points. Hmmm?
Again, stay in stocks and ETFs in the strong sectors and avoid those in the weak sectors like the plaque. It pay$.
BTW, yesterday I mentioned that gold (GLD) was just shy of generating a Buy Signal. Well, yesterday’s early inflation report was all gold needed to trigger the Buy. GLD shot up 2.15 points to 128.23. My target for GLD on this run remains near the 135 level. Check-out the Hockey Stick.
That’s what I’m doing,
h
Market Signals for
02-15-2018
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEG |
SUM IND | NEG |
VTI | POS |
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