Professor’s Comments May 2, 2018

Posted by OMS  at May 2nd, 2018

The markets fell hard early yesterday, then rallied into the close.  The Dow finished down 64 points, closing at 24,099.  The large cap index got as low as 23,808, reaching the upper end on my target ‘Buy Zone of 23,500-23,800.  The NASDAQ and SPX finished the day up 64 and 7 points, respectively.  Volume on the NYSE was moderate, coming in at 100 percent of its 10-day moving average.  There were 34 new highs and 100 new lows.

Yesterday’s reversal day could have been the end of wave ‘c’ down within Wave ‘’e’ down in the Major triangle pattern that has been developing since 26 January.  No guarantees, mostly because many of the indicators I use to confirm a reversal are still negative.  However, yesterday’s rally off the 23,800 lows was enough to turn the Money Flow indicator on the Dow positive, and that’s a good sign.  On the other hand, my combination VTI-volume indicator remains negative, which tells me we still need to exercise caution.

Yesterday’s late rally could have been sub-wave ‘b’ of Wave ‘c’ down.  If this is the case, the Dow could continue to rally early this morning, but then start to fall again to test the 23,500 level.  I don’t believe this will happen, but it could as long as the indicators and Lists remain negative.

My VTI-volume indicator on the technology laden NASDAQ did generate a Buy Signal after yesterday’s session. 

I used yesterday’s early decline to buy several ‘trial’ positions in a few stocks and index ETFs.  The ‘trial’ buys produced a nice ‘cigar day’ for me by the close. 

One of the stocks I bought yesterday was Chevron (CVX).  With the Energy Sector leading the Strong Sector List, I wanted to own an energy stock, and CVX is usually my first choice when it comes to energy.  In my WSR, I mentioned how the stock was in an Up Trend, with its 2-period RSI overbought.  I was just waiting for the 2-period RSI to become oversold before placing a Rifle Trade and yesterday I got my chance.  Yesterday’s purchase of CVX was my Basic Position in the stock. So now I’ll continue to hold the stock and look for additional Rifle Trades as long as the indicators remain positive.

Yesterday’s Sector Ratio stayed at 19-5 negative.  That’s still pretty negative and is another reason for caution.  I would feel a lot better about a rally starting if I started to see the ratio move closer to a 50-50 split.  I’d also like to see a few of the sectors I believe will lead the market higher, like the Semis and Financials, start to move onto the Strong List, but that’s not happening now.  The Strong List is still led by Energy, Utilities, Leisure, Food Drugs, and Healthcare.  Major rallies like the one I expect are never led by sectors like Utilities and Food-Drug.  These are defensive sectors, so continue to remain cautious. Remember, IF I’m right and the market starts to break out of its large triangle pattern, there will be plenty of opportunities to make money on the upside. 

The Weak Sector List was led by the Semis, Household Products, Cap Equipment, Autos, Banks, and Financials.  I’m not interested in shorting any of these sectors now, because the Dow could be in the process of developing a Major Bottom.  However, IF the Dow should break below the 23,500 level, that would change everything.

One of the stocks I’ll be watching today is Thor Industries (THO).  The recreational vehicle maker has slumped about 30 percent year-to-date.  Last night, THO was highlighted by one of my algorithms, and with the Leisure Sector near the top of the Strong Sector List, something positive could be getting ready to happen. My combination VTI-volume indicator on THO is on a neutral signal.

Gold and most mining stocks fell yesterday.  Gold still appears to be completing the final waves of a Bullish triangle pattern for Major Wave 2 down.  My combination VTI-volume indicator remains on a neutral signal. 

That’s what I’m doing,

h

Market Signals for

05-02-2018

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