Professor’s Comments June 28, 2017
Posted by OMS at June 28th, 2017
The Dow fell 99 points, closing at 21,311. The NASDAQ fell a whopping 101 points as large cap technology stocks got hammered. Volume on the NYSE was moderate, coming in at 101 percent of its 10-day average. There were 73 new highs and 12 new lows.
Going into June, I mentioned that 20 June was looking like an important turn date for the market. So far, that prediction is looking pretty good.
In particular I mentioned that we needed to watch the NASDAQ 100 or QQQ, as it was developing the ‘Blade’ of an important Hockey Stick Pattern. I also discussed how this Pattern was also the right shoulder of a larger Head & Shoulders Topping Pattern.
So yesterday, while the NASDAQ was falling, I was watching the 138.20 level on the Q’s to see if it would be broken. This level is important because it’s where a trend line connecting the lows of 18 May and 15 June is located. A break of this trend line would likely send the Q’s to the 200-day moving average, near the 128.5 level.
And IF 128.5 is broken, it would mean the NASDAQ is performing a ‘Rope Jump’, which would identify the move as Major Wave 1 down of a new Bear Market.
Yesterday the Q’s closed at 138.03. So, it’s likely the slide will continue, at least on the NASDAQ. As I mentioned yesterday, money appears to be leaving the overpriced large cap ‘FANG’ type stocks and rotating into some of the beaten-up sectors, like oil and energy. OIL was up 0.11 cents yesterday to 4.67. DIG fell, but it was only down 0.7 cents to 34.94. CVX was down 0.07 cents to 104.07. BTW, a small positive Hockey Stick Pattern has formed after a positive ‘Rope Jump’ on CVX. The ‘Rope Jump’ occurred after the stock completed a TLB Pattern, which means that CVX could be in the process of turning positive. Right now, the indicators on CVX are still negative as the ‘Blade’ continues to form. But IF the indicators turn positive, CVX and other energy stocks like it might be an interesting place to be once the current decline in the Dow completes.
Why do I say this? Well, for one thing, while the patterns on the Q’s are extremely negative, this is not the case for the Dow and SPX (SPY). I’m NOT saying their patterns are positive (they’re not!) but if the alternate Wave ‘D’ down scenario I talked about yesterday is happening, the Dow should fall to the 21,050 – 21,100, level before rallying back toward 21,500+. And IF the Dow starts to rally from these levels, it would likely be led by the beaten-down energy stocks as money flows out of technology. It’s simple a risk off – risk on play. Money Managers and investors will start to look at stocks like CVX, with a dividend yield of 4.15 percent as very attractive.
Combine this with a call option writing program where you can collect another 8-10 bucks per year from the call options and suddenly a beaten-down stock like CVX starts to look EXTREMELY attractive. It’s why I’m watching the indicators on CVX now.
BTW, I don’t advocate writing calls on overpriced technology stocks. I saw a friend of mine try to do this on Telmex many years ago, and the strategy failed miserably. He thought he had the perfect strategy for Bear Markets. He would simply write calls on the stocks he owned, thinking the premium from the calls would protect him. It didn’t. When Telmex started to dive, no amount of call premium could compensate him from the loses he was taking in the Bear Market. He got hammered.
That’s why I only sell calls on stocks I buy that have already been beaten down. I simply look at the stock as a ‘truck’ that gets rented out each month. If nothing happens to my truck that month, I just keep the premium. If the ‘truck’ moves higher and the option holder takes the truck away from me, I simply buy a new truck and start the process over. I always do this on beaten down stocks that pay relatively high, consistent dividends, like CVX.
Anyhow, it’s one of the reasons I’m watching CVX now. I need a new truck and the potential turn around pattern looks interesting.
Yesterday’s Sector Report improved slightly. The report had 12 strong sectors and 12 weak sectors. Leisure, Computers, PharmaBio, Healthcare, and Financials continue to lead the strong sector list, with Energy, Autos, Telecoms, Retail, and Food/Drug lagging. If you believe the Bull Market is not dead yet, and that money will probably flow from the large cap technology or ‘FANG’ type stocks, then the Sector Report should interest you. The Report will tell you the sectors where the money is moving into and out of. Note that PharmaBio and Healthcare are now among the strongest sectors. Healthcare stocks were not on the Report a few weeks ago, but now they are. So as money leaves the FANGs, it’s moving into Healthcare and PharmaBio.
That’s why I’m watching energy. Right now, energy leads the Weak Sector Report. It’s been there for months! But yesterday, the energy sector had a large Delta Trend Score of 104!!! Same for the Utility Sector which had a DTS of 124!!! This tells me the momentum players are starting to move their scared money out of the ‘FANG’ stocks into the more conservative dividend payers.
So, watch….If I’m right about the continued decline in the Q’s, then a lot of this money will start to find its way into the more conservative sectors. When this starts to happen, watch for the Energy and Utility Sectors to appear on the Strong Sector Report.
Also watch for DIG to replace DUG on the Dean’s List.
That’s what I’m doing,
h
Market Signals for
06-28-2017
DMI (DIA) | POS |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
SUM IND | NEG |
VTI | NEG |
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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Category: Professor's Comments