Professor’s Comments January 10, 2019

Posted by OMS  at January 10th, 2019

Yesterday’s trading was very similar to Tuesday’s session.  The markets gaped higher and then traded in a narrow range, weakening into the close. The Dow finished up 92 points at 23,879 after reaching a high of 23,985.  The NASDAQ and SPX were up 60 and 11 points, respectively.  Volume on the NYSE was moderate, coming in at 103 percent of its 10 day moving average.  There were 12 new high and 11 new lows.

Yesterday gap opening on the Dow formed another spinning top candlestick pattern.  As I mentioned yesterday, spinning tops are often seen near short-term tops, but they need a down day today to complete the pattern.   An early look at the futures suggests we could get that down day today.

There are several reasons why the current rally could be nearing completion.  The first is that the A-D oscillator had its third consecutive day of EXTREME overbought readings yesterday, this time at 353.4.  Students should note that this reading is only 13 points from the previous day’s reading which means that the early decline in the futures could turn into a larger decline as the day progresses.  Because the difference in A-D oscillator readings was more than 10 points, I didn’t turn on the cockpit light.  But perhaps I should have given the small change of only 13 points is occurring while the A-D oscillator is showing EXTREME overbought readings above 350.

The second reason is because money started flowing out of the market late yesterday, the first time since the current rally began.  My Money Flow indicators are still positive, but yesterday’s late decline tells me that things could be about to change. The point is, be careful. The markets could be putting in a top here.

The Sector Ratio strengthened to 7-17 negative after yesterday’s session. But even after two weeks of corrective rally, the Sector Ratio is still weak. The Strong List was led by Consumer Products, PharmaBio, Real Estate, Retail, and Material.   The Weak List was led by Food, Food Drugs, Technology, Telecoms, and Media.  Students should note that the Materials Sector, which includes gold, has finally joined the Strong List.  The current RS rating for Materials is zero, so even though it’s on the Strong List, the low RS rating means it’s still a pretty weak sector. It’s a start.

I normally talk about wave counts in my second or third paragraph, but to tell the truth, I’m still not sure where we are in the count, so I’m giving it a lower priority.  IF the current rally completed yesterday at 23,945, that’s still only about 200 points from where I thought sub-wave 2 up would end.  This is not enough of a difference for me to make the call between a sub-wave 2 vs. a Wave 4, which I thought would complete near or slightly above 24,000.  It’s too close.  At the end of the day, it shouldn’t really matter, as both wave counts suggest lower prices.  The only difference being in how the two scenarios would unfold.  The sub-wave 2 scenario should feel more crash like, while the Wave 4 scenario would be more of an orderly stair-step decline. We’ll just have to wait and see how the decline develops.

With mixed indicators on the cockpit, I continue to wait for the current rally to complete.  I’m still watching the 35-period CCI on the 60 min bars of the DIA, waiting for it to turn negative.  When it does, it’s likely the next wave down is starting. BTW, students can also watch the CCI on the shorter-term bars, like the 15s and 30s to see how the decline is progressing.  Now that the Dow has approached the 24,000 level, each of these short-term time periods could be a potential trigger point for entering short-term positions. However, the shorter the time period, the greater the risk.  I want to reduce my risk, so I’m waiting for the indicators on the 60s to turn negative.

Using the 60s as a trigger, I will be establishing my initial positions in inverse index ETFs as position trades, not scalps. Remember, the next wave down should be impulsive, so I will be holding a good portion of my positions overnight, looking for a down trend to develop.

Gold (GLD) rose 0.78 cents to 122.31.  GLD continues to trade above its 50 and 200-day moving averages, which pulls the 50 up toward the 200.  The moving averages are now very close to crossing which would put gold into an Up Trend.  If GLD pulls back to the 118 -119 level in the days ahead, I continue to view it as a major buying opportunity.  

That’s what I’m doing,

h

Market Signals for

01-10-2019

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