Professor’s Comments January 26, 2018
Posted by OMS at January 26th, 2018
The markets were mixed again yesterday. The Dow rose 141 points even though Apple had another bad day, falling to its lowest level since the year began. The Dow closed at 26,393. The NASDAQ fell 4 points while the SPX gained 2 points. Volume on the NYSE was moderate, coming in at 103 percent of its 10-day average. There were 265 new highs and 64 new lows. BTW, on yesterday’s big rally, the number of new highs decreased by almost 100, while the new lows almost doubled from the previous day. Strange!
The trannies also had another bad day yesterday, with IYT dropping 3.18 points to 198.46. The 2-period RSI on ITY is EXTREMELY oversold now with a reading of 3.86, so with the Transports in an Up Trend, I’ll be looking for the possibility of a Rifle Trade in the sector. On the other hand, the volume portion of my VTI-volume indicator turned negative yesterday, which makes the indicator neutral. So, if the trannies have another bad day today, the indicator will generate a Sell Signal. If that happens, I’ll pass on the Rifle Trade. BTW, the VTI-volume indicator turned positive on IYT on 28 November with the ETF trading at 175.82. Yesterday IYT closed at 198.46. That’s why I’m being cautious about the trannies now. I don’t want to be holding them if my VTI-volume indicator turns negative.
The only change I noticed after yesterday’s trading was with the breadth indicators. Two of them, the Summation Index and the A-D oscillator, turned negative. This means The Tide is now neutral. Most of the other cockpit indicators are still strong, and the Sector Ratio remains EXTREMELY strong, so I’m still bullish. But with breadth starting to weaken, and a Bearish Rising Wedge pattern developing on the Dow, I want to be bit cautious.
BTW, yesterday’s action on the Dow did nothing to change the small Rising Wedge or Ending Diagonal Pattern that started on 17 January. So, IF the Dow starts to break down and moves below 26,275, it could easily fall to the 25,700-25,800 level. Again, IF this happens, I would view the decline as a significant buying opportunity.
The market appears to be a bit overbought at this stage in the rally, so the odds for a short-tern correction are increasing. Longer-term, continue to ride the horse. IF the market does pull back as I expect, the short-term decline will likely form the ‘Blade’ of another Hockey Stick which will enable stock prices to push even higher. Stay in stocks and ETFs in the strong sectors and avoid those in weak sectors.
Yesterday’s Sector Ratio decreased to 22-2 positive. The Real Estate Sector joined the Utilities on the Weak Sector List. The volume portion of my VTI-volume indicator on the Real Estate Sector has turned negative, but the VTI remains positive. If the VTI turns negative, the indicator will generate a Sell Signal. Real Estate and REITS are starting to feel the effects of rising interest rates and competition from Fed ‘unwinding’ (selling).
The strongest sectors were led by Healthcare, FoodDrugs, Retail, Cap Equipment, Energy, Specialty Banks, Material, and Media. If the Dow does pullback from its small wedge pattern, I will look for Rifle Trades in the strong sectors.
Gold and most mining stocks pulled back yesterday from overbought conditions. GLD fell 0.86 cents to 127.97. In doing so, the ETF formed a ‘Hanging Man’ candlestick pattern usually seen near tops. I’m watching gold closely now, because it appears that the Dollar could be forming a short-term bottom. UDN, the inverse ETF for the Dollar is still on the Dean’s List as is ULE, the Ultra long ETF for the Euro. If these two ETFs fall off the Dean’s List in the days ahead, it would strengthen the case for a rising Dollar, which would likely result in a correction in gold. My VTI-volume indicator on GLD is still positive, but the volume portion of the indicator is showing negative divergence. If the indicator turns negative, I’ll let you know. BTW, the VTI-volume indicator on GLD turned positive on 18 December with GLD at 119.73. So far, GLD has reached a high of 129.28 on the current rally.
I’m also mentioning the Dollar today because the volume portion of my VTI-volume indicator on UUP, the ETF for the Dollar, turned positive yesterday. This is the first time the volume portion of the indicator has been positive since 15 December. If the Dollar starts to rise, it will put pressure on the Big Cap stocks that do a lot of business overseas. So, what happens to the Dollar could spill over and impact U.S. markets, especially the Dow. Watch the Dollar.
That’s what I’m doing,
h
Market Signals for
01-25-2018
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
SUM IND | POS |
VTI | POS |
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