Professor’s Comments July 19, 2018

Posted by OMS  at July 19th, 2018

The markets were mixed yesterday.  The Dow finished up 79 points, closing at 25,199.  It got as high as 23,215 before pulling back.  The NASDAQ finished flat; the SPX was up 6 points. Volume on the NYSE was moderate, coming in at 108 percent of its 10-day moving average.  There were 78 new highs and 42 new lows.

The Dow continues to remain at a critical juncture this morning, testing upper trend line resistance of the large triangle pattern that started last January.  If it can break through this resistance, and start trading above the 25,250 level, it will be a good indication that Major Wave 5 up is underway.  Otherwise, there is a growing possibility that the Major Wave 4 triangle is still not complete, and prices could fall back to the 24,000 level to complete sub-wave ‘c’ of Wave ‘e’ down. 

One of the reasons I used the word ‘growing’ in the above paragraph is because of what’s happening on the Dean’s List and The Tide.  They’re both starting to turn negative.  Last night, even though the Dow rose 78 points, DXD, the inverse ETF for the Dow appeared on the Dean’s List.  This is a very strange occurrence.  Same for TWM, the inverse ETF for the Russell 2K.  It’s also on the Dean’s List.  These ETFs should NOT be on the List IF the Dow is going to re-test the January high.  Something’s wrong.

It appears that what’s happening in Europe, China and Japan could be impacting the markets here in America.  If you look closely at the Dean’s List, you will see that several inverse ETFs for China (FXP), the Emerging Markets (EEV), Japan (EWV) and Europe (EPV) are all near the top of the Dean’s List.  Also, two of the inverse ETFs for the currencies for Japan and Europe (YCS and EUO), are also near the top of the List, telling me they’re getting weaker while the Dollar is rising.  This is NOT good news for American companies that want to sell their goods and services overseas.  It makes their goods significantly more expensive.  So, it’s looking like the potential for a full-blown trade war is starting to impact on the markets.   If the trade war happens, it would be something that could cause the patterns to morph.  We might not get to 26,616+ after all.

Anyhow, its cause for concern and is definitely something to watch. 

Right now, my combination VTI-volume indicator on the Dow remains on a Buy Signal, but still has not entered the Trend Zone.  So with the 2-period RSI now at 95,5, it’s EXTREMELY vulnerable to a pull back.  At the very least, this pullback, if it occurs before the Dow starts trending, would be Wave 2 in the pattern.  At its worst, it could be the start of sub-wave ‘c’ down within Wave ‘e’ down of the large triangle.  This wave could drop the down back down to the 24,000 level or below.  So be careful.  This is not the time to be getting aggressive.  If the Dow begins to fall, the downside momentum could pick-up and cause prices to drop in a hurry.  As long as the Dow remains below the 25,250 level, this sub-wave ‘c’ scenario remains a strong possibility.

The Sector Ratio remained at 18-6 positive after yesterday’s session.  However, the Strong List still has several of those ‘pesky’ defensive sectors near the top of the List. This too remains a concern, because as long as sectors like Technology, Financials, and Cap Equipment remain near to bottom of the List, it will be difficult for the Dow to begin a sustained rally toward 26,000+.

Last night, the Strong Sector List was led by Computers, PharmaBio, Consumer Products, Food Drugs, Retail and Transportation. The Semiconductor Sector remained near the middle of the List. Cap Goods, Financials, and Technology were at the bottom.  IF several of these ‘aggressive’ sectors start to move onto the Weak List, it would be another indicator that the market is heading lower. 

Gold and the miners were flat yesterday.  The indicators on gold are ugly at this point.  I’m not buying gold or mining stocks until my indicators turns positive.  BTW, it’s hard for me to even consider buying gold with UUP on the Dean’s List.  Gold traders should never try to fight a rising Dollar.   It’s always better to wait for UDN, the inverse ETF for the Dollar, to appear on the List.

That’s what I’m doing,

h

Market Signals for

07-19-2018

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