Professor’s Comments March 7, 2019

Posted by OMS  at March 7th, 2019

The markets fell hard yesterday.  The Dow lost 134 points, closing at 25,678. The NASDAQ and SPX were down 70 and 18 points, respectively.  Volume on the NYSE was moderate, coming in at 100 percent of its 10-day moving average. There were 60 new highs and 33 new lows. Students should note how the number of new highs continues to decrease while the number of new lows is increasing.  Last night, the Hi-Lo indicator closed with a reading that was only fractionally positive.  If it turns negative, it will join the three other negative breadth indicators that make up The Tide and turn it negative. The Tide is usually one of the better tells for a change in market direction.

Yesterday’s decline on the Dow turned my VTI-volume indicator negative.  The same indicator on the NASDAQ remains positive.  BTW, the Russell 2K also generated a Sell Signal yesterday, while the SPX (SPY) remains on a Buy. So overall, my market timing signals for equities are now mixed. With mixed signals, it’s still possible that the decline we’ve seen for the past week is part of a small wave 4 within a five wave sequence leading to a top during the 8-11 March Fibonacci cluster period.  On the other hand, the decline could be the start of the a-b-c Wave 2 pullback that could drop the Dow down to the 24,500 level or lower. At this point, it’s still early in the decline to tell if Wave 2 down has started, but with a new Sell Signal on the Dow, that possibility has increased significantly.

BTW, my custom volume Money Flow indicator on the Dow and Russell 2K are also negative. This tells me that a few of the institutions are starting to take money out of the market.

The Tide remains Neutral while the Dean’s List is still positive.

As I mentioned above, I’m currently watching the Hi-Lo indicator to see if it turns negative.  If this indicator turns negative, it will make The Tide negative, which will increase the odds for a corrective Wave 2 a-b-c pullback.  

One reason I’m still cautious about the start of Wave 2 down is because of the Sector Ratio.  It’s still very strong.  Last night, even with the decline we’ve seen for the past three days, the Sector Ratio remained at 23-1 positive.  If you recall, the Sector Ratio was one of the indicators that confirmed the October decline and the early January rally.  But so far, I’m not seeing any weakness from this indicator. The Ratio remains strong so I still need to be cautious about the downside. The Strong Sector List continues to be led by Household Products, Real Estate, Semiconductors, Technology, and Retail. The only Weak Sector is FoodDrugs.

Gold and mining stocks continued to pull back yesterday. GLD fell 0.11 cents to 121.61.  GLD still appears to be working its way through a Wave 2 pullback.  Support at the 200-day moving average near 119.80 on GLD remains a likely target. Once the timing indicator for GLD turns positive, I’ll be adding a gold position to the Model Portfolio. Be patient and watch for a signal change.

After an early pullback, Crude Oil (UCO) rallied back from oversold conditions to finish down 0.20 cents at 19.1.  The ETF remains on a Buy Signal.  UCO oil still appears to be developing a small wave 2 ‘Blade’ along its 50-day moving average.  Yesterday’s early decline re-tested lower trend line support of a small triangle on the 15 minute bars.  The re-test was likely wave ‘e’ of the triangle.  If this analysis is correct, UCO should begin to break out of the triangle and begin to test its 200-day moving average currently located near the 23 level. 

Students should continue to watch the longer-term inverse Head & Shoulders Pattern on Crude Oil.  This pattern has been developing since late November 2018 on the Daily Charts.  If West Texas Crude stays above 54, it has a good shot at the 66 level in the next 4-6 weeks.  This morning, WTIC futures were trading at 56.63, up 0.41 cents.  

Model Portfolio:  The Model remains 25 percent invested in Crude Oil (UCO) and 75 percent in cash.  However, now that my VTI-volume indicator on the Dow has generated a Sell Signal, I’ll be looking to for an opportunity to add a few shares of DXD to the Model.  With mixed signals on the cockpit, an extremely oversold 2-period RSI, and a strong Sector Ratio, I’m probably only going to buy a partial position in DXD. I’d really feel a lot better about the DXDs IF I saw the Sector Ratio starting to weaken, but right now that’s not happening.  Also, I’m still waiting for gold to complete its Wave 2 pullback before adding gold shares to the Model.

That’s what I’m doing,

h

Market Signals for

03-07-2019

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