Professor’s Comments July 25, 2018

Posted by OMS  at July 25th, 2018

The markets were mixed again yesterday.  The Dow had a nice day, gaining 198 points to close at 25,241.  It got as high as 25,287, but couldn’t hold the 25,250 level.  The NASDAQ was down 1 point, while the SPX was up 13.  Small cap issues on the Russell 2K lost 18 points.  Volume on the NYSE was heavy, coming in at 113 percent of its 10-day moving average.  There were 96 new highs and 40 new lows.

The problem with yesterday’s session was the breadth.  It’s weakening. Even though the Dow was up big, the number of declining issues outnumbered those advancing by 1609 to 1344.  So, the divergences in breadth you would expect to see in the final wave of a Major Bull Market are starting.  During the next few weeks, as the market continues to push higher, fewer and fewer issues will be participating.

Yesterday’s decline in the NASDAQ did not change its signal.  It’s still neutral. The VTI portion of the indicator (the momentum) is still positive, so I’m watching it closely.  With volume decreasing, the index isn’t going anywhere.  BTW, the A-D oscillator on the NASDAQ fell to -72.9 yesterday on a day when the index made an all-time high.  Very strange.  It’s possible that the NASDAQ could have topped yesterday.  We’ll see.

The indicators on the Dow remain positive, but prices still need to break above the 25,250 level.  This level, which is the upper trend line of the large triangle pattern, is a key resistance level.  If the Dow can break through this resistance, and start trading above the 25,250, it will be a good indication that Major Wave 5 up is underway.  Otherwise, it’s still possible that the Major Wave 4 triangle is still not complete and prices could pull back to the 24,000 level to complete sub-wave ‘c’ of Wave ‘e’ down.

My combination VTI-volume indicator on the SPX (SPY) remains on a Buy Signal and in the Trend Mode. 

The short-term patterns continue to suggest higher prices.  However, the fact that divergences in breadth are starting to appear is an early warning.  Like I said yesterday, with the Fed tightening the money supply it’s causing interest rates to rise which will provide a strong headwind for the market. Students can see this by noting that TBT, the inverse ETF for U.S. 20+ year Treasury Bonds, is now on the Dean’s List and moving up. Yesterday, TBT pulled back slightly after two days of rally.  The rally caused a ‘Rope Jump’, so technically, TBT is now in an Up Trend.

The 2-period on TBT is still overbought with a reading of 70.4.  If the 2-period RSI continues to pull back and becomes oversold (below 30), I’m a buyer.  My combination VTI-volume indicator for TBT has moved to a Buy Signal.  Students should remember that TBT is a very volatile leveraged issue that moves at -2X the daily performance of the ICE U.S. Treasury 20+ Year Bond Index.

The Sector Ratio fell to 15-9 positive after yesterday’s session.  However, the Strong List continues to be dominated by the defensive sectors and until this changes, I don’t see how the Dowt can rally back to or above the January highs.  Last night, the Strong Sector List was led by Consumer Products, Retail, PharmaBio, Food Drugs, and Computers.  Cap Goods, Financials, and Banks are still on the Strong List near the bottom.  The Semis have moved to the Weak List, joining Technology.

The Weak Sector List was led by Household Products, Autos, Leisure, Materials, and Energy.  I would avoid these sectors now, especially IF the Dow can’t punch through the 25,250 level.

Gold and the miners were flat yesterday.   I’m not doing anything with the metals until my VTI-volume indicator turns positive. 

That’s what I’m doing,

h

Market Signals for

07-25-2018

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