Professor’s Comments January 8, 2019

Posted by OMS  at January 8th, 2019

The markets opened higher yesterday then pulled back slightly into the close.  The Dow finished up 98 points at 23,531 after reaching a high of 23,658.  The NASDAQ and SPX were up 85 and 18 points, respectively.  Volume on the NYSE was moderate, coming in at 101 percent of its 10 day moving average.  There were 8 new high and 11 new lows.

Yesterday’s rally caused the A-D oscillator to finish with an EXTREMELY over bought reading of 287.  Readings above 280 are rare and usually result in a pullback within 1-2 days.

Because yesterday’s action appeared corrective, it’s still likely that it is part of sub-wave 2 up within Wave 3 down.  If this is the case, the Dow should not exceed the 23,700+ level before Wave 3 down resumes its decline. 

The other possibility is that the current rally is NOT part of sub-wave 2 up, but instead is Wave 4 up.  If this is the case, the Dow would likely exceed the 23,750 level, possibly reaching a high of 23,900 -24,100, before pulling back.  In both cases, the next wave down should drop the Dow back under the 21,500 level once the current rally wave completes.  The difference in the two scenarios is that the sub-wave 2 scenario would be a rapid decline to 21,300 whereas the Wave 4 scenario would be a slower, stair step decline as Wave 5 down unfolds.  Both scenarios would be impulsive declines at the start, but wave 3 of Wave 3 down would be more of a crash like decline, whereas Wave 5 down would likely be a more orderly five wave decline.

The reason I’m mentioning the Wave 4 scenario this morning is because my Major Market Timing indicator for the NASDAQ has now turned positive.  The same indicator for the Dow has turned Neutral.  These robust indicators are built so they do not change direction during minor sub-waves, so something else could be going on.

With mixed indicators on the cockpit, all I’m doing now is waiting for the 35-period CCI on the 60 min bars of the Dow to turn negative.  When it does, it’s likely that the rally in either scenario is over, and the next wave down will begin.

Also, remember what I mentioned in my WSR about the large out-sized rally on the day of a Jobs Report Large moves like the one that occurred last Friday are usually followed by short-term weakness. And most of these declines are between 3.8 to 6.8 percent. So keep this in mind if you’re trading the current rally to the long side.

The Sector Ratio increased to 5-19 negative after yesterday’s session.  The Strong List was led by Household Products, Consumer Products, Telecoms, Semiconductors, and Retail.  The Weak List was led by Healthcare, Food, Energy, Technology, and Banks. The Sector Ratio is still way to negative for me to be trading the long side, except for scalps.

Speaking of scalp trades, Valero (VLO) produced several nice scalp trades again yesterday.  The stock finished up 0.08 cents at 77.09 after reaching a high of 78.34.  The 2-period RSI on VLO is now overbought with a reading of 74.3 with the VTI showing No Trend, so I wouldn’t be surprised to see VLO begin to start pulling back soon.  Remember, the pattern for VLO suggests that it is entering a triangle with the upper boundary near the 80+ level.  So, yesterday’s high of 78.34, came close to that upper level.

Gold (GLD) gained 0.42 cents yesterday to close at 128.86.  The recent rally in gold has pulled the 50-day moving average to less than a half point of its 200.  IF equities rally during the next few days, it’s likely that gold will pull back slightly closer to its moving averages.  If it does, I would consider the pullback as a major buying opportunity.  IF the moving averages cross, it would signal that gold is about to enter a major uptrend.  The uptrend would be Major Wave 3 up.  A Major Wave 3 up is usually a nice place to own gold and mining stocks.

That’s what I’m doing,

h

Market Signals for

01-08-2019

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