Professor’s Comments February 16, 2018
Posted by OMS at February 16th, 2018
The markets rallied hard again yesterday. The Dow finished up 307 points, closing at 25,200. The NASDAQ and SPX were up 113 and 32 points, respectively. BTW, the Dow is now up about 600 points since my combination VTI-volume indicator generated a Buy Signal. The NASDAQ is up 243 points since its Buy. Volume on the NYSE was low, coming in at 80 percent of its 10-day average. There were 69 new highs and 48 new lows.
Yesterday’s rally did not provide any indication of which scenario is occurring, as both scenarios I’ve been talking about for the past few days call for a rally to higher levels. Remember, rallies in a Bear Market can be impulsive as traders are forced to cover their short positions which drive stock prices higher. We won’t know for sure whether the current rally is Wave 2 up in a new Bear Market or Wave 5 up in an old Bull until the market gets to higher levels (near Dow 26,000). One thing we do know is where to be: Computers and Healthcare, the two strongest sectors. Yesterday, Apple (AAPL) was up another 5.62 points, on top of the 3.03 points it gained the previous day. Microsoft (MSFT) was up 1.85 points. Cardinal Health was up another 0.76 cents. Tenet (THC) finished up 0.77 cents. Stay in the strongest sectors! If you haven’t been doing this, you’re missing the boat. Recall last September when Semiconductors were leading the list. Intel (INTC) went from 35 to 47 in less than 2 months. Applied Materials (AMAT0 went from 44 to 60. Then in December, the Sector List broadened. Remember there were days when the Sector Ratio was 22-2 positive. Most of the time the Ratio was 20+ positive. You could have bought almost anything. Anything except the Utilities, which were consistently on the Weak List. Cap Equipment, FoodDrug, and Transportation were the leading sectors in December. Boeing went from 269 to 352, Caterpillar went from 140 top 173, CVS went from 71 to 83, FedEx from 239 to 274. During the same time, while the overall market was rising, Utility stocks like Duke Energy, were falling from 88 to 77. And now we’re seeing the same thing happening with Computers and Healthcare. Remember, these were the only on sectors on the Strong List when the market was taking a dive. Because of this, we knew they would lead the way higher once the correction was over. The Strong Sector List told you where to be. It also told you what to avoid! So, when the VTI-volume indicator turned positive, triggering a Buy, it was pretty easy to know what to Buy. You only had two sectors to choose from: Healthcare and Computers. OK, what now? The Dow has now recovered about half the points it lost during the decline since 29 January. It’s also only 800 points shy of the 26,000 level I’m using as a bounce back target in my Bearish Scenario. So as the Dow rises, I’m getting more and more cautious. I have to! At this point the odds are 50-50 that the Bearish Scenario could be correct. These are not good odds when you think about the alternate, which is a Wave 3 Crash once Wave 2 up completes…IF the current rally is Wave 2 up. You’ll notice that I’m NOT betting on a rise to 28,000+ at this point either. I need to see a lot more from my indicators before that happens. Right now, with a positive VTI-volume indicator on all the major indexes, I’m just looking to trade the market to the 26,000 level on the Dow. However, IF my VTI-volume indicator turns south, I’m out! OUT! But meanwhile, I’ll be looking to trade stocks and ETFs in the strongest sectors, especially on pullbacks. For example, Apple has been on fire, but its VTI-volume indicator is only 44.51, so its NOT in the Trend Mode. Its 2-period RSI is EXTREMELY overbought at 97.44. It should pull back. BTW, today is options expiration Friday, and the week has been very positive for stocks. Usually IF the market closes up today, it tends to pull back the following week. In other words, next week might be a better time to go shopping. Gold and most mining stocks were flat yesterday. I’m on a Buy Signal for gold (the metal) but my VTI-volume indicator is still neutral on most mining ETFs, like GDX. The volume portion of the indicator is still negative, with the momentum portion only reading 38.2. The 2-period RSI is overbought at 93.88. With readings like this, GDX should pull back a bit. If it does, I’ll buy some. My target for GDX is near the 27-28 level, possibly higher. The Sector Ratio increased to 13-12 positive. Computers, Healthcare, Consumer Products, Media, Banks, and Material (includes gold) led the Strong List. The Weak Sectors continue to be Autos, Real Estate, Utes, Energy, and Insurance. The Foods, Financial, and Leisure Sectors all had large positive Delta Trend Scores yesterday, so there is a strong possibility that they could be joining the Strong List in the days ahead. This would increase the Sector Ratio, and increase the odds for rally to 26,000, possibly higher. That’s what I’m doing, h Market Signals for 02-16-2018
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