Professor’s Comments January 4, 2019

Posted by OMS  at January 4th, 2019

The markets opened sharply lower on Thursday on news that Apple cut its revenue forecast.  Disappointing sales in China was the reason given for the decline.  Hmmm?  Apple has now lost about 35 percent of its value since my VTI-volume indicator turned negative on the stock on 8 October.  The indicator has never been positive since that date.

With Apple down over 10 percent yesterday, the Dow dropped 660 points closing at 22,686.  The decline was impulsive suggesting that sub-wave 2 is over and Wave 3 down of Major Wave 3 down is back underway.  My target for Major Wave 3 down remains near the 21,300 level, however the decline won’t be straight down.  There will be sharp retracement rallies along the way.  I will be looking to short these rallies.

BTW, the markets were extremely oversold after yesterday’s 600+ decline which dropped the 2-period RSI to 15.52.  I mention this because even though the Dow dropped 600+, my momentum indicators are still heading up.  This means it’s likely the markets will bounce today and recover about 200-300 points of yesterday’s decline before falling again.  Like I said, I will be looking to short any rally approaching 23,800+.  BTW, If the Dow does get back to the 23,800 level, I believe the risk is 200 points higher vs. 2,500 points lower.  In other words, the odds for a short trade are about 12.5 :1.  I like those odds :>)

The NASDAQ and SPX were down 202 and 62 points, respectively. Volume on the NYSE was moderate, coming in at 90 percent of its 10-day moving average.  There were 12 new highs and 40 new lows.

There were no changes to any of my major market timing signals after yesterday’s trading.  The Dow, NASDAQ, SPY, and RUT remain on Sell Signals.

The Sector Ratio remains at 0-24 negative.  I can’t even think about going long this market with all 24 sectors being negative. 

Bonds were up big yesterday with TMF gaining 0.67 cents at 20.35.  Smart money continues to move into Bonds and out of equities.  BTW, how good has my Bond Timing indicator been?  The indicator turned positive on 19 November with TMF at 16.42.  The indicator remains on a Buy Signal.

There was a change in the market timing signal for Crude Oil last night.  The indicator turned from negative to neutral.  Recall that last week I mentioned that my Money Flow indicators for UCO had turned positive telling me that the institutions were starting to buy crude.  This institutional buying has caused the volume portion of my VTI-volume indicator to turn positive, making the overall signal Neutral.  This is an important development as we’re getting close to entering a very positive trading period for crude.

Also, some of my favorite low risk stocks, like Valero (VLO and Conoco Phillips (COP) are tied to the price of crude oil.  So, any strength in crude will likely be reflected in the price of these stocks.  BTW, the chart pattern on VLO suggests it is entering a triangle that could last for a few months. I usually don’t get too excited about triangles, but in this case it’s different.  If I’m right about VLO, the next leg of the triangle should take VLO to the low 80s.  I’m NOT interested in owning or holding VLO during this period.  I’m just taking her on a few daily dates.  By trading VLO on the short-term bars, it provides me with a low risk go-to trade whenever the market is oversold…like yesterday.  I must have traded VLO to the long side 2-3 times yesterday, even though the overall market was tanking!  Again, I’m not looking for a large amount of points.  All I want is .30 – .50 cents out of each trade.  Yesterday, VLO at 6X earnings, produced over 1.3 points in intraday trades to the long side by itself!  VLO is NOT a fancy, high maintenance Apple or Facebook or one of the other FANG stocks. It never makes the news.  That’s why deep down, I love her.  The signals for VLO on the 2s started turning positive at the 11:10 mark. IF you didn’t get caught up in yesterday’s overall market panic and went on a quiet date with VLO, you had a nice day in addition to the pile you made with your DXDs or QIDs.

We’re in a Bear Market that is heading lower.  This is NOT the time to be in love with or married to one of the FANGS or other fancy stocks.  If you feel you must trade the long side, go on a nice quite date with the low maintenance girl next door.

Protect yourself.

That’s what I’m doing,

h

Market Signals for

01-04-2019

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