Professor’s Comments July 14, 2016

Posted by OMS  at July 14th, 2016

The markets were mixed yesterday.  The Dow rose 24 points, closing at 18,372.  The NASDAQ and Russell 2K were down 17 and 5 points respectively.  Volume on the NYSE was moderate, coming in at 94 percent of its 10-day average.  There were 304 new highs and only 2 new lows.

It looked like the markets were just pausing to rest yesterday. I kept watching for signs that the indicators would start to turn negative, but it didn’t happen. So with The Tide and the Dean’s List still very positive, yesterday’s pause should allow the markets to push higher.

At this point it’s not clear how much higher the rally could continue.  But the one thing that we know is that low volume, parabolic, rocket ship rallies like the one that is occurring now, usually end badly.  However, until the indicators actually turn negative, it’s likely that the rally will continue.

The index with the best pattern for estimating a top is the S&P500.  It appears to be completing the final wave of a Broadening Top Pattern that should complete near the 2180 level.  That’s about 28 points from where it closed last night.  If this pattern holds, it means the parabolic rally on the Dow could complete about 225 points higher near the 18,600 level.  If a negative news event occurs, the flame out could occur sooner.

Right now it appears that the post Brexit rally is being caused by foreign money flowing into US stock.  But yesterday, there were two polls that showed the U.S. presidential race was getting a lot closer in three key swing states.  So it’s possible that some of the fuel for the rally is a result of shifting sentiment on the part of U.S investors. 

I don’t have any idea about how the race for the White House will impact the current patterns, if at all.  But anytime the market starts to enter a frenzied state, we know that patterns can morph into other patterns.  That’s why we follow the indicators, and for now they’re all very positive.

Gold had a small bounce from oversold conditions yesterday, but not enough to trigger a trade on the stock (ABX) I was watching.  Maybe today.  I still believe gold is headed a lot higher and continue to look for entry points.

That’s what I’m doing,

h

Market Signals for

07-14-2016

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