Professor’s Comments January 27, 2016

Posted by OMS  at January 27th, 2016

The Dow rose 282 points, closing at 16,167.  Volume was low again, coming in at 86 percent of its 10-day average.  Big rallies on low volume are not what you want to see if you’re Bullish. There were 20 new highs and 74 new lows.

Not much changed with yesterday’s rally.  It still appears that wave 4 up is underway as yesterday’s rally was likely all or part of minor wave ‘c’ up of the move to my target of 16,200+. 

Yesterday’s rally reached a high of 16,186, only 14 points from my target.  So if the Dow starts to move down today, it’s possible that the move could be the start of wave 5 down.  This wave should re-test the August lows as a minimum and likely drop the Dow below 15,000.

So yesterday with the Dow above the 16,150 level, I started to establish a few short positions using inverse index Etas.  If the market continues to move down this morning, I will look to add to those positions. Now that the Dow has moved above 16, 000 for the second time, I believe that any short or inverse ETF trade established near current levels is a high reward-low risk trade.

Yesterday, Apple (AAPL) announced its first quarterly revenue drop in more than a decade.  It also reported slowing sales on most of its produces, including the iPhone.  As most of you know, I follow AAPL very closely because of its impact on the Dow and the technology market.  AAPL is one of the reasons the Dow has done well during the past few years and now that it appears to be crashing, it’s taking the Dow with it. 

The reason for all of this of course is China.  The Chinese economy is slowing and this is impacting Apple’s sales, as China is Apple’s second largest market. 

The Dean continues to rank FXP, the inverse China ETF, high on his List.  It’s been there for months and is inversely correlated with APPL.  I use FXP as my ‘Stick in the Sand’ for Apple.  In other words, when FXP is on the Dean’s List, it probably means that APPL is in for some rough sledding.  And if things are bad for Apple, they are probably bad for the entire technology sector.

Speaking of ‘Sticks in the Sand’ I noticed that DUG, my ‘Stick’ for energy is starting to move lower on the Dean’s List.  I also noticed that the Money Flow on the ETF has turned negative.  Hmmm?  This is something I will be watching closely in the days ahead, especially if the Dow starts to move toward 15,000. 

This is because once wave 5 down of Major Wave 1 down completes, I expect a significant Wave 2 rally to begin.  This rally should last for several months before Major Wave 3 down (the major crash wave) hits and takes the Dow significantly lower.  But that’s still months away, and because I expect that Major Wave 2 up will take place into the March-April time period, I will be looking to trade energy. 

Remember, XOM and CVX are two major components of the Dow.  So if they start to rally going into March-April, it’s likely they will take the Dow with it.  

So all I’m doing now is watching DUG.  As long as it’s on the Dean’s List, I’m not interested in energy.  Just like I’m not interested in AAPL, because FXP is on the List. 

But when DUG drops off the List and is replaced by DIG, the positive ETF for energy, that’s when I will become interested in energy.  Especially if the calendar is showing that we’re getting close to March.  I love to trade energy going into March-April.

If you have some time today, take a quick look at what happened to energy stocks last year.  Then look at what happened the year before that. And the year before that.   Some people look forward to the spring for the flowers and warmer weather.  I look forward to trading energy.  It makes me feel warm inside. 

That’s what I’m doing,

h

BTW, did you notice what happened to Johnson Controls (JCI) yesterday?  JCI has always been one of my favorite companies.  It’s a diversified technology and industrial company that makes things like heating, ventilating, and air conditioning systems.  I always loved the company because I felt that it was as American as a company can be. JCI recently announced that it was merging with Tyco and relocating its operational headquarters to Milwaukee.  The merger was not big deal, but what the headlines didn’t say was that the global headquarters was being shifted to Ireland.  The move will reduce the companies tax rate from about 28 percent to 22 percent, saving the company about $150 million in taxes each year.

And while the focus of the article is on savings to the company, the thing you should understand is that most of the Millions in revenue that JCI pays in taxes will now go to Ireland. This loss of revenue will impact all of us, just because of a change in headquarters.  A paper transfer!

Guys, I gotta be honest.  I know that with the election coming, many of you are focused on issues like gun control, abortion, somebody’s rights or whatever.  The press continues to highlight these issues and bury important stories like JCI’s in middle of the paper.  The bottom line is that if we don’t change the tax structure in American so our companies can compete and STAY in America, we’re all going to be affected.  When we lose the tax revenue from companies like JCI and others, there will be less money to support government programs like Social Security, Medicare, and the Military. The money for these programs all comes out of the same big pot. The loss in revenue also means that there will be less jobs and even more debt.  We MUST change the tax structure!  So when you listen to a politician, and he or she promises to give you more free things, like healthcare and college without lowering taxes, always ask how they plan to pay for these programs. There is no free lunch! As far as I’m concerned, if a politican doesn’t talk about lower taxes and less regulation for American companies, he’s just blowing smoke. We need to make America competetive again.

Market Signals for

01-27-2016

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