Professor’s Comments January 31, 2018
Posted by OMS at January 31st, 2018
The markets fell hard again yesterday. The Dow lost 363 points, closing at 26,037. So far, the decline on the Dow for the past two days has been a total of 540 points. The NASDAQ and SPX fell 64 and 31 points, respectively. Volume on the NYSE was moderate, coming in at 108 percent of its 10-day average. There were 46 new highs and 251 new lows.
The momentum portion of my VTI-volume indicator on the Dow turned negative. However, the volume portion of the indicator remains positive. This most likely means that corrective wave 4 of a five-wave rally that started on 29 August has begun.
Also, The Tide is negative, but the Dean’s List, the DMI, and Money Flow indicators all remain positive. The 2-period RSI on the Dow dropped to 14.98. So, the market remains in an Up Trend, is currently oversold, and appears to be starting a wave 4 correction.
What is not clear this morning is how wave 4 down will develop. It could be a five-wave triangle, or a simple a-b-c correction. If it’s the latter, the Dow should bounce back from oversold conditions and re-test the 26,400 level for wave ‘b’ before dropping to 25,700 in late February.
One of the reasons I feel the Dow could be developing a simple a-b-c correction instead of a ‘normal’ triangle for wave 4 is because yesterday’s decline started from an opening gap down. Most times, especially when a stock is in an uptrend, gaps are re-tested and filled. So with mostly positive indicators on the cockpit, the wave 4 correction could take the form of an a-b-c correction.
If not, and a triangle is developing for wave 4, the Dow will likely bounce between the 26,000 and 26,400 levels for the next few weeks before pushing on to new highs.
So in either case, the Dow should bounce from current oversold levels, setting up short-term opportunities for Rifle Trades on the short-term bars.
At this point, I do NOT see the kind of technical damage to the indicators that would lead me to believe that the past two days are anything but a normal correction in a well-established Up Trend. However, IF the indicators start to turn negative, and the momentum shifts to the downside, that’s another story. But for now, I’m not seeing this yet. All I’m seeing after yesterday’s action is a normal correction to an overbought market.
Remember, for me to start trading the downside, I need to see a negative Tide AND inverse index ETFs appear on the Dean’s List. So far, none of the inverse index ETFs are on the List. So, I can’t get negative.
But because the 2-period RSI on the Dow is oversold with the index still in an Up Trend, I can start looking for Rifle Trades to the long side on stocks and positive index ETFs on the short-term bars.
The Sector Ratio did not change after yesterday’s trading. It remains at 22-2 positive. If the Sector Ration remains positive, I must view the current decline as a correction in a Bullish Up Trend.
The Strongest Sectors remain Healthcare, FoodDrug, Retail, Cap Equipment, and Specialty Banks. If the market starts to bounce during the next few days, I would expect these sectors to lead the market higher.
The two Weakest Sectors remain the Utilities and Real Estate.
Gold and most mining stocks also fell yesterday. GLD dropped 0.55 cents to 126.8. GDX fell 0.23 cents to 23.45. Both ETFs remain in Up Trends with oversold 2-period RSIs. In other words, Rifle Trading conditions are in place for gold and the miners..
Late yesterday, when I saw the oversold RSI conditions, I bought a few shares of GDX as a speculation. If the short-term bars turn positive today, I’ll add to the position with a Rifle Trade. I believe that gold (the metal) is in a rising trend channel that could see it trade above the 1,400 level, possible as high as 1,450 on this leg up. If this happens, GLD should reach the 135 + level. GDX could reach 28. Because of this, continue to look to buy it whenever the 2-period RSI is oversold.
That’s what I’m doing,
h
Market Signals for
01-31-2018
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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