Professor’s Comments July 6, 2018

Posted by OMS  at July 6th, 2018

The markets staged a nice rally yesterday on light post-Holiday volume. The Dow finished up 182 points at 24,357.  The NASDAQ and SPX were up 84 and 23 points, respectively. Volume on the NYSE was at 85 percent of its 10-day moving average.  There were 78 new highs and 37 new lows.  

The markets are at a cross roads this morning.  Yesterday’s rally appeared to be part of a small triangle, possibly sub-wave ‘b’ up within Wave ‘e’ down.  If this is the case, the Dow should start a decline that could last a week to 10 days before completing near the 23,750 level.  Triangles are consolidation patterns where the market pauses to rest from its last major move.  In this case, the last major move in the Dow was the decline that started on 12 June.  Triangles are usually reliable patterns, so even the small triangle that’s been developing since last week must be respected.  A break below 24,200 on the Dow would likely start a decline to the 23,750 level.

On the other hand, it’s also possible that the markets are getting ready to move significantly higher.  The reason I say this is because several of the cockpit indicators turned positive after yesterday’s session.  The Dean’s List and The Tide are now positive.  However, the VTI portion of my combination volume/momentum indicator is still not showing the type of positive momentum I would expect to see if a major rally was starting.  At this point in the pattern, I would need to see the Dow move above 24,600 to believe that the next rally phase of the market, Major Wave 5 up, is underway.  Major Wave 5 up should take the Dow to the 26 600+ level.

So, the two levels to watch on the Dow are 24,200 and 24,600.  A move above or below those levels will signal the next significant move in the market.  

Students should watch these levels because the BLS will be releasing the numbers from the June Jobs Report at 8:30 this morning.  The Jobs Report is something that could trigger a major move in the market.  Any surprise could start a move above or below the levels mentioned above.

BTW, I ran The Professor algorithm last night and he wasn’t much help either.  He only highlighted 22 stocks to the upside.  If Wave 5 up was starting, which is an impulse wave, the number of stocks on the Professor’s list should exceed 50.  So, at this point, he’s not seeing a major rally starting either.

The Sector Ratio improved slightly to 13-11 positive after yesterday’s session.  It still does not look like the robust list I would expect to see at the start of a major rally.   The Strong Sector List is still being led by defensive sectors like Energy, Retail, FoodDrugs, Consumer Products, and Healthcare.  The Computer Sector has moved to the bottom of the Strong List.  I still want to see the Technology, Cap Equipment, Semis, Banks and Financials sectors to move to the Strong List before I commit the bulk of my money to the long side.  Also, the fact that both the positive and inverse ETFs for the Dollar, UUP and UDN, are now on the Dean’s List is telling me to be cautious.  I still feel that  Technology and Cap Equipment will have a tough time starting their next leg higher as long as UUP remains on the List.

My combination VTI-volume indicator for GLD and SLV remains on a Sell Signal.  However IF UUP falls off the Dean’s List, I would look for gold and silver to strengthen and possibly generate a new Buy Signal.

That’s what I’m doing,

h

Market Signals for

07-06-2018

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