Professor’s Comments July 7, 2016

Posted by OMS  at July 7th, 2016

The Dow fell 128 points early, then rallied on the release of benign Fed minutes to close up 78 points at 17,919.  Volume was moderate, coming in at 91 percent of its 10-day moving average.  There were 250 new highs and 46 new lows.

I found it interesting that just before the Fed minutes were released, with the market near its low, the 2-period RSI Wilder on a ‘live’ chart of the Dow was showing an oversold reading just below 30.  Remember, going into the day, our new VTI indicator was showing No Trend.  So with No Trend in place, the 2-period RSI Wilder was telling me it was time to exit my short trades and go long.  That’s exactly what I did, and as a result, I had profits on both short and long trades from Honor Roll stocks.

After yesterday’s late rally, the VTI on the Dow remains in a No Trend Mode with the 2-period RSI showing a reading of 68.77.  With these neutral readings and the other cockpit indicators being mostly positive, it’s likely that the market will continue to chop higher until prices become overbought.  From the current pattern, it is still possible that the Dow will test the 20 April high of 18,168. If it does, I would view the move an opportunity to establish short rather than long positions.

Students should note that at 17,919, the Dow is only 267 points from the April high.  So once again, the question for the next week or so is one of risk vs. reward.  Remember, with the current pattern, the downside risk is the February low near 15,500.  Longer term traders should take this into consideration if the Dow starts to approach the 18,000+ level.

Gold continues to move higher, with GLD closing up 0.76 cents at 130.23.  GLD reached a high of 131.15 yesterday, so it’s right on path to hit my target near the 133-134 level, possibly a bit higher.  BTW, one of the reasons I feel so confident about gold continuing to move higher is because of the VTI indicator on gold.  Right now its showing a nice Up Trend with a reading of 82.51 and moving up.  Just remember that IF GLD starts to approach 134, we shouldn’t get greedy. On the other hand, students should recognize that the current move in gold is likely only part of wave 3 up. My longer term target for gold is a lot higher. However students trading gold should understand that the wave 3 target for GLD should be near the 134+ level, possibly higher. After that, gold should experience a wave 4 pullback, before a wave 5 rally takes the metal higher.

BTW, the last time the VTI on GLD entered the Trend mode was on 25 January, with the stock trading at 106. When the trend was over, GLD was trading at 119. So it might be fun to watch the VTI on GLD in the weeks ahead. I’ll try to remember to keep you posted on this.

One of the stocks I’ll be watching today is Greenbriar (GBX).  Last night Emeritus highlighted the railcar manufacturer for the Honor Roll.  The company benefited from the boom in rail transportation in the five years after the 2008 recession, but over the past couple of years, a cyclical downturn has send its stock plunging. One of the sectors that I believe will get extremely hit hard in the coming downturn is transportation.  So the fact that Emeritus highlighted the stock last night is very interesting to me.

Yesterday I talked about how I like to trade stocks from the Honor Roll when they become overbought or oversold.  So if GBX can recover some of yesterday’s 2.66 point decline, such that the 2-period RSI on the Daily Chart is not so oversold, I would view the stocks as a very attractive short.  Yesterday GBX closed at 26.13.  I’d like to short it above 27 for a move below the January low of 20.  There’s a good possibility that GBX could pop from current levels as the VTI is showing No Trend with an oversold RSI reading of 9.25.

That’s what I’m doing,

h

Market Signals for

07-07-2016

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