Professor’s Comments June 26, 2018

Posted by OMS  at June 26th, 2018

The markets fell hard yesterday as trade war concerns continue to impact stocks.  The Dow finished down 328 points at 24,252.  At its low, the Dow was down almost 500 points reaching a low of 24,084. The NASDAQ and SPX were down 161 and 38 points, respectively. Volume on the NYSE was moderate, coming in at 106 percent of its 10-day moving average.  There were 39 new highs and 104 new lows.

In my WSR, I discussed how the markets would likely develop a second low, below the low made on 21 June of 24,407, to complete Wave ‘e’ down within the large triangle pattern that started on 26 January.  So, by falling to 24,084, it’s possible that sub-wave ‘c’ down within Wave 2 down is complete.  The final wave of a triangle pattern usually completes somewhere above the triangle’s lower support boundary line, which for the current pattern is near the 23,750 level.  We’ll know that the pattern is complete when the indicators turn positive.

Right now, just about all the indicator I follow are negative.  This is perfectly normal for where we are in the pattern.  As long as the 23,750 level on the Dow holds, it shouldn’t be too long before the next rally starts.  The rally should be Major Wave 5 up, which should take the Dow to new all-time highs.

Yesterday’s decline on the SPX, NASDAQ and Russell 2K appeared to be associated with Wave 2 down within Major Wave 5 up.  In other words, these indexes appear to have already started their Wave 5 up.

BTW, at yesterday’s low, the Dow was down over 1,000 points since my combination VTI-volume indicator generated its Sell Signal.  This is one of the reasons why I’m watching this indicator very closely now.  I believe that once it turns positive, it will signal the start of the next rally phase of the markets. 

After Thursday’s 196-point decline on the Dow, the volume portion of the VTI-volume indicator fell hard. But Friday’s rally and yesterday’s decline have left the volume portion of the indicator in a significantly improved state.  That’s right… the indicator strengthened considerably!  It’s now at a point where almost any positive news could turn the indicator positive!  This is why what’s happening now in India is very important.

As I mentioned this weekend, trade officials from the U.S. and India will be meeting in New Delhi this week to discuss trade issues.  If positive news comes out of this meeting, it could trigger the start of the next rally. Like I said this weekend, this ‘potential’ trade war is just plain stupid.  Let’s hope that everything that has been said to date is just part of the President’s negotiating tactics to put the U.S. in a better position to work out a better deal on trade.  But better deal or not, the issues we have with India, China, the EU, Japan and others do not justify going to war over trade.

After yesterday’s session, the Sector Ratio fell to 11-13 negative.  So even though stocks took a beating yesterday, the Sector Ratio is still pretty neutral.  I’m seeing lots of 0s and 1s on the Weak List, which tells me these sectors could easily flip over to the strong List on any rally.  The Strong Sector List continues to be led by defensive issues like FoodDrugs, Retail, Healthcare, Media, and Consumer Products.  Students should watch this List closely in the days ahead, because these defensive issues should start to be replaced by Technology and Cap Equipment.  This would be a Major sign that the market has started to turn positive. Students should also watch for the Materials Sector, which includes gold, to move onto the Strong List.  As long as gold is weak, it means the Dollar is strong, which will preclude any rally in large cap international stocks.

The Weak Sector List was led by Leisure, Household Products, Technology, Materials, Semiconductors and CapGoods. 

My combination VTI-volume indicator for GLD and SLV remain on Sell Signals. 

That’s what I’m doing,

h

Market Signals for

06-26-2018

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