Professor’s Comments July 4, 2018

Posted by OMS  at July 4th, 2018

The markets opened sharply higher yesterday, then fell into the close. The Dow finished down 132 points at 24,175.  The NASDAQ and SPX were down 65 and 13 points, respectively. Volume during the shortened session was low, coming in at 58 percent of its 10-day moving average.  There were 70 new highs and 27 new lows.  The fact that the number of new highs exceeded the number of new lows for the first time in several weeks is noteworthy.  It tells me that breadth of the market is not as negative as appears on the surface.

Yesterday’s early rally appeared to be the completion of sub-wave ‘b’ with the late decline looking like the start of sub-wave ‘c’ down within Wave ‘e’ down.  Taken together, they appear to be forming a small triangle.  If this is the case, the Dow should continue its decline to re-test the 24,000 level later this week.  Then once Wave ‘e’ completes, the Dow should begin its Wave 5 rally toward the 26,600+ level. 

Yesterday’s trading caused the Hi-Lo indicator to turn positive.  So now, only 3 of the 4 breadth indicators that make up the Tide are negative.  Students should pay attention the next time The Tide turns positive.  It could mark the start of the Wave 5 rally.  Students should also watch for a change to my combination VTI-volume indicator.  Currently, the indicator is still neutral, with the volume staying positive but the momentum portion of the indicator still negative.  Be patient and wait for the indicators to turn positive.

I also noted a change to the Dean’s List after yesterday’s trading.  Several of the positive index ETFs appeared on the List replacing the inverse ETFs for the SPX, NASDAQ, and RUT.  However, DXD, the inverse index ETF for the Dow is still on the List.  This is pretty interesting, because it lends support to what I’ve been saying about the patterns on the Dow and the other major indexes.  The Dow appears to be completing Major Wave 4 down, while the others are already in Major Wave 5 up, with Wave 2 down of the five-wave sequence nearing completion.

I still believe that any decline to the 24,000 level or lower should be viewed as a major buying opportunity.  As long as the Dow stays above the 23,750 level, the large triangle scenario (Major Wave 4) that has been developing since 26 January remains in place. Once this large triangle pattern completes, prices should move significantly higher.

The Sector Ratio improved to a neutral 12-12 after yesterday’s session.  The Strong Sector List is still being led by defensive sectors like Utilities, FoodDrugs, Retail, Consumer Products, Healthcare and Energy.  I’m still waiting for the Technology, Cap Equipment, Computers, Banks and Financials sectors to lead the way higher. All these Sectors are still on the Weak List.  UUP remains on the Dean’s List near the bottom.  If the Dollar remains strong, the Technology and Cap Equipment sectors will have a tough time starting their next leg higher.  Be patient.

My combination VTI-volume indicator for GLD and SLV remains on a Sell Signal.  If the Dollar starts to decline, I would expect gold and silver to strengthen.  But right now, the indicators are still too weak for me to trade them.

Have a Happy 4^th!

That’s what I’m doing,

h

Market Signals for

07-05-2018

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