Professor’s Comments July 13, 2016

Posted by OMS  at July 13th, 2016

The Dow rallied for another 121 points, closing at 18,347.  Volume was moderate, coming in at 108 percent of its 10-day average.  There were 304 new highs and only 2 new lows.

Both the Dow and S&P500 reached new highs yesterday.  The NASDAQ and Russell 2K are still well off their previous highs.  The Dow transportation index is also well below its November 2014 high of 928, after closing at 788 yesterday.  The negative divergence between the Dow industrials and the Dow transports is a classic non-confirmation that the current rally is suspect.

Not much changed with the indicators.  I did note one thing this morning that I did not notice before though.  Last night, when I downloaded the data from my laptop computer, I noticed that the VTI on the Dow was still below the Trend Level, so I left the cockpit indicator Green, with No Trend.  However when I looked at my desktop computer this morning, it was showing that the indicator had just barely entered the Trend Mode.  So apparently there is a slight difference in the data between the two computers.  The laptop is the computer I take with me when I travel, but it’s also the one I use every night when I post the Dean’s List and Member’s Watch List.  So to be consistent and until find the error in data, I’m still going to show No Trend on the cockpit.

BTW, the VTI for the NASDAQ and the Russell 2K are also showing No Trend. 

So basically, the markets are EXTREMELY overbought and not in trend modes.  With conditions like this, they should experience some sort of pull back.  Whether this pullback is the start of a major down trend or a temporary correction remains to be seen.  But it would be very unusual for this rally to continue straight up without some type of pullback.

Gold continued to pull back yesterday, with GLD dropping 2.14 points to 127.5.  The VTI on GLD remains in the Trend Mode and now its 2-period RSI is an oversold 10.09.  In other words, GLD is now a candidate for Rifle Trades on the shorter term bars.

With the market rallying and gold declining, the PT indicators never gave me a chance to enter a Rifle Trade on ABX.  It looks like the current rally in the general market has caused gold and gold stocks to fall out of favor.  I don’t expect this to last.  Once investors start to realize that they are paying premium prices for equities that are now at record highs, they might start looking elsewhere for better bargains.  That’s when the flow of money should start to come out of these higher priced equities and back into gold.

Here’s the thing:  Nothing has changed with Brexit, at least for the short term.  Europe is still in recession with negative interest rates, and political chaos that will not be corrected anytime soon.  This is causing scared money to move into perceived ‘safe havens’.  Right now, US stocks are being looked at as the cleanest shirt in the laundry basket, so they’re being bought aggressively.  But once investors start to realize that they’re now paying 26.8 times earnings for the S&P, which is a whopping 60.5 percent more than the historical mean of 16.7, a lot of people are going to get burned once the party ends. 

Watching the indicators.

That’s what I’m doing,

h

Market Signals for

07-13-2016

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