Professor’s Comments June 28, 2019
Posted by OMS at June 28th, 2019
The markets were mixed again yesterday. The Dow dropped 10 points, closing at 26,527. The NASDAQ was up 58 points while the SPX was down 4 points. Volume on the NYSE was moderate, coming in at 92 percent of its 10-day moving average. There were 98 new highs and 31 new lows.
Wednesday’s small change signal from the A-D oscillator is still on the board, so the Dow could make a Big Move today. The market timing indicator for the Dow remains Neutral while the NASDAQ and SPX remain on Buy Signals. The Russell 2K moved to a Neutral Signal, as small cap stocks rallied yesterday on rumors that the Fed will lower interest rates by a half percent in late July. The Tide turned neutral after yesterday’s session. The Dean’s List has turned positive. The DMIs for the Dow and NASDAQ remain positive while the Money Flow indicators on the same indexes are negative. Overall, the indicators remain mixed, but improving. Nothing has changed with respect to the overall patterns. The Dow still appears to be in the process of completing the final waves of Wave ‘C’ up. It’s starting to look like the past three days of sideways to down trading has been a small wave 4. If this is the case, wave 5 up should begin today. This rally could take the Dow near or slightly above the 27,000 level. However, students should realize that the final wave of a termination pattern does not have to reach its projected target. It can truncate and end at any time. At this late stage in the rally, patterns are no longer reliable. This is why I’m watching the timing indicators so closely now. The Sector Ratio remained at 15-9 Negative after yesterday’s session. The Strong Sector List was led by Household Products, Insurance, Real Estate, Healthcare, and Telecoms. The Weak Sector List was led by Service, Energy, Retail, Transportation, and Utilities. The transports rose slightly again yesterday from EXTREME oversold conditions. The 2-period RSI on IYT, the Transportation ETF rose to 45.2, so the ETF is no longer oversold. If the Dow begins its wave 5 rally today, it will be interesting to watch how the transports perform as they continue to develop the right shoulder of their potential H&S pattern. Again, students should continue to watch the trannies during the next few weeks, because IF they start to break down, they should start testing the ‘neckline’ of IYT near the 176 level. Anything below 176 would spell trouble for the transports…and the overall market. Students should also watch the 185 level on the QQQ, the ETF for the NASDAQ-100. The last few days of trading on QQQ have produced a small ‘Blade’ that suggests higher prices, like the pattern on the Dow. However, IF the 185 level on QQQ is broken, all bets for higher prices are off. Gold continued its wave 2 pullback yesterday. I’m still on the sidelines with gold, looking for a place to re-enter my positions. With the Home builders on Sell Signals, I have begun to trade them to the short side. Yesterday, PHM rose 0.39 cents from oversold conditions to 31.55. The intraday rise gave me an opportunity to scalp the stock. PHM is currently trading near its 200 day moving average where it appears to be forming a ‘Blade’. Once this ‘Blade’ completes, the home builders, including PHM, should begin a significant decline as wave 3 down unfolds. Right now, I’m just looking for opportunities to trade the stock. Students should note the THT Pattern that has been developing since late April. They should also note that the DMI is now negative. What do we say in Class about stocks with a THT Pattern and a negative DMI? Model Portfolio: There were NO CHANGES to the Model after yesterday’s session. The Model holds 1500 shares of TWM, the Ultra Short (3X) inverse ETF for the Russel 2K. The Model continues to hold these shares as it looks for a potential decline in the Russell 2K during the next few weeks. BTW, even though the pattern on the Dow and NASDAQ favors higher prices, the pattern on the small cap index is less supportive. Shares of TWM took a pretty big hit yesterday, dropping 0.59 cents to 15.13. The decline caused the 2-period RSI on TWM to fall to a slightly oversold reading of 18.5. With the CCI showing NO Trend, IF TWM continues to decline today, I’ll be watching the 2-period RSI for a possible entry point. This assumes the timing indicators on the RUY remain Neutral. On the other hand, IF the timing indicators begin to turn negative, the Model will sell its shares. After yesterday’s session, the Model is up 17.3 percent. This translates to an annualized gain of about 60 percent. The Model continues to hold most of its assets in cash, waiting for high probability opportunities to put the cash to work. Right now, with mixed signals on the cockpit, the odds are not favorable to have a lot of money on the table. The Model Portfolio is being shown for educational purposed only. The Buy/Sell actions in the Model Portfolio are made based on technical indicators that can and do change frequently and should NOT be considered as recommendations for trading an actual portfolio. Any gain or loss in the Model Portfolio should not be used to predict future performance of the Model. That’s what I’m doing, h Market Signals for 06-28-2019
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