Professor’s Comments July 12, 2018

Posted by OMS  at July 12th, 2018

The markets fell hard yesterday, correcting the overbought conditions after four consecutive days of impulsive up moves.  The Dow fell 219 points, closing at 24,700. The NASDAQ and SPX were down 43 and 20 points, respectively. Volume on the NYSE was moderate, coming in at 98 percent of its 10-day moving average.  There were 59 new highs and 44 new lows.  I found it interesting that even though the Dow was down over 200 points, the number of new highs still exceeded the number of new lows. This is a very positive sign.

Yesterday’s decline was expected.  In yesterday’s Comments I mentioned how the 2-period RSI on the Dow was EXTREMELY overbought with NO Trend in place.  Students should note what happened yesterday for future reference.

To understand what happened yesterday, we need to look at the large triangle pattern the Dow has been developing since 26 January.  Triangles are almost always corrective patterns within a rising trend.  So, in this case we MUST assume that it was the Major Wave 4 correction. If this assumption is correct, the Dow should re-test the January high of 26,617 as a minimum.  If the Dow has a ‘through-over’ wave for Wave 5 up within Major Wave 5 up, it could go as high as 28,000.  But that’s still months away.

For now, we need to look at the how the Dow is transitioning from Major Wave 4 down into major Wave 5 up.  This is where we are now…. starting the transition.  

So, let’s look at what happened so far.  Since the 28 June low of 23,997, the Dow has moved up in what appears to be the start of a five-wave sequence.  The most important technical aspect of this wave is what happened on Monday-Tuesday, when the Dow moved above its 200-day moving average.  I call this ‘Jumping the Ropes’.  A ‘Rope Jump’ typically identifies the move as Wave 1 up.  Wave 1s are NOT where the market usually trends.  It only sets the table for the next major up trend, which should occur once when Wave 3 up begins to unfold.  During Wave 3 up, we should start to see our trend indicators, like the 35-period CCI, move into the Trend Mode (over +100 for an Up Trend).  Right now, the CCI is only at 3.26. 

So, with NO Trend in place, we had to expect the market would pull back when its 2-period RSI was overbought. Yesterday’s pullback could have been sub-wave 4 within Wave 1 up, or it could have been the start of an a-b-c corrective move for Wave 2 down.  We don’t know which one it is yet, but after a ‘Rope Jump’ its highly likely that the Dow will spend the next few days bouncing between 24,575 and 25,000 to form the ‘Blade’ of a Hockey Stick for Wave 2 of the pattern, before Wave 3 up begins.   A nicely developed Wave 2 should provide the market with the energy it will need to power it significantly higher.  It should also provide us with several nice entry points for buying stocks.  Yesterday’s pullback was one of those opportunities.

If you didn’t take advantage of the yesterday’s pullback, don’t worry.  If I’m correct about the Dow being in transition, there should be several pullbacks before Wave 3 up begins.  As long as the 35-period CCI stays below +100, you can assume that Wave 3 up has not started.  But once the CCI moves above +100, I will assume that the Dow has entered the next Trend Mode.  This is where I will be holding stocks and ETFs for the ride up.  

After yesterday’s session, the Sector Ratio fell to 16-8 positive.  This is still very positive for where we are in the pattern.

The Strong Sector List continues to be led by defensive sectors like Consumer Products, Food Drugs, and Energy.  The aggressive sectors like Semiconductors, Computers, PharmaBio, and Cap Goods are till on the List near the bottom. However, the Financials and Banks moved back on the Weak List.  Again, it should be interesting to watch how the List makes the transition from defensive sectors to offensive sectors during the Wave 2 pullback.  I continue to believe that Wave 3 of Major Wave 5 up will begin once the ‘offensive sectors’ take over the Strong Sector List. 

Gold and the miners fell hard yesterday. GLD finished down 1.29 at 117.64.  My combination VTI-volume indicator for GLD and SLV remains on a Sell Signal.  Gold appears to be in the process of forming a nice bottom near current levels.  Students should continue to watch gold and HUI, the gold miners index now.   I still believe that if the HUI can move above its 200 in the days ahead, it would be a Major technical factor for gold.

That’s what I’m doing,

h

Market Signals for

07-12-2018

One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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