Professor’s Comments july 31, 2018

Posted by OMS  at July 31st, 2018

The markets fell hard yesterday.  The Dow lost 144 points, closing at 25,307.  The tech heavy NASDAQ dropped 107 points, while the broader SPX lost 16 points.  Volume on the NYSE was moderate, coming in at 99 percent of its 10-day moving average.  There were 45 new highs and 41 new lows.  The breadth was not as bad as one might expect for a 100+ point down day as the declining issues only outnumbered the advancers by 1581 to 1375.  So, there is still a lot of strength in the market.

My combination VTI-volume indicator on the Dow turned neutral after yesterday’s session.  The volume portion of the indicator remains positive, but the momentum portion has turned down.  This usually happens when the Dow is developing a corrective wave within a major up Wave sequence, like a small wave 2.  The momentum remains in the Trend Zone, so as long as this indicator stays above 70, its likely the Dow will continue to trend higher.  My target for the Dow in Major Wave 5 up remains at the 26,600+ level.

The VTI-volume indicator on the NASDAQ remains neutral.  The same indicator on the SPX (SPY) remains on a Buy Signal and in the Trend Mode. 

I found it interesting that yesterday’s decline on the SPX consisted on five waves down.  The pattern is clear on a 15 min chart.  So IF the SPX rallies during the next day or so and approaches the 2813-2815 level, it would set up a nice buying opportunity on the next pullback, probably near 2807 or below.  In other words, I’m looking for the index to develop an a-b-c pullback during the next few days, before the market resumes its push  higher.  If the pullback occurs, the next wave up should take the SPX to the 2900 level or higher. 

BTW, today is the last day of the month, so it should have a slightly positive bias. If the market rallies today, I would look for it to pull back early next week. The pullback would be wave ‘c’ of the a-b-c pattern discussed above. 

TBT, the inverse ETF for Bonds, gained 0.29 cents yesterday.  The ETF still appears to be forming the ‘Blade’ of a Hockey Stick Pattern as it trades just above its 50 and 200-day moving averages.  I continue to look for opportunities to Buy a few shares of TBT, as I believe interest rates are going higher.  BTW, even though TBT has now entered the Up Trend Mode, the longer term pattern that I’m trading (a H&S) suggests that Bonds could rally a bit more before starting their longer tern decline.  So, I wouldn’t be in any great hurry to accumulate a lot of TBT at current levels. For now, I consider TBT to be a short-trade only.  However, IF the inverse ETF pulls back on a short-term rally in Bonds, I’d love to accumulate a few more shares at slightly lower levels to play a decline in Bonds later this year.  The H&S pattern suggests that 20+ year treasury Bonds will tank later this year as interest rates rise.  This rise in interest rates should also put pressure on the equity markets. But not now.

The Sector Ratio slipped to 14-10 positive after yesterday’s session.  This is perfectly normal for where we are in the pattern.   As long as the Sector Ration remains positive, it’s likely that prices on the indexes will continue to push higher.  IF the ratio turns negative, that’s when I’ll begin to worry.  Not now.

The thing I am concerned about is the lack of leadership in the sectors.  The Strong List continues to be dominated by defensive sectors with technology noticeably lacking.  I just can’t get too excited when I see Transportation, Food Drugs, PharmaBio, Consumer Products, and Retail at the top of the Strong List.  Hopefully this will change during the next week or so once the a-b-c correction completes.  

The Weak Sector List was led by Leisure, Energy, Materials, Technology and Autos.  I continue to avoid these sectors.  BTW, now that gold appears to be forming a bottom, students should watch for the Materials Sector to move off the Weak List.  When it does, it would be another indication that gold is starting its next leg up.

I’m still on Sell Signals for gold and silver, but my VTI-volume indicator continues to suggest a bottom is near. Pay attention to this signal.  It could be a good one!

That’s what I’m doing,

h

Market Signals for

07-31-2018

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
FAQ

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