Professor’s Comments May 23, 2019
Posted by OMS at May 23rd, 2019
The markets fell yesterday, continuing the choppy trading sideways pattern of the past week. Choppy sideways trading is almost always associated with the development of a triangle so once the pattern completes, the markets should resume their downward course. Yesterday, the Dow finished with a loss of 101 points, closing at 25,777. The NASDAQ and SPX finished down 35 and 8 points, respectively. Volume on the NYSE was moderate, coming in at 94 percent of its 10-day moving average. There were 100 new highs and 89 new lows.
The volume portion of my VTI volume indicator took a big hit yesterday, so yesterday’s decline could have been the start of Wave ‘c’ down within Wave ‘B’ down. If this is the case, there should be additional follow through today as the Dow begins a choppy decline that should eventually test the 25,000 level before Wave ‘B’ down completes.
However, as I mentioned yesterday, we need to be on our toes now as the Dow begins to decline. This is because the 25,000 level has become the ‘Neckline’ of a large Head & Shoulders pattern. And IF this ‘Neckline’ is broken, my next target for the Dow is the 24,000 level. In other words, how the Dow approaches and tests the 25,000 level will determine the future direction of the market. IF the area near 25,000-25,200 holds, there’s still a good chance that the Dow will rally to new highs later this year. IF it doesn’t, and the Dow declines to 24,000 or lower, the odds will suggest that a Major Top is in and any subsequent rally will only be Wave 2 of a new Bear Market.
Because the a break of the 25,000 level is still uncertain, I don’t want to get too aggressive with my inverse positions in equities. The reason I want to remain cautious is because this market is still trading on ‘news’ and NOT on fundamentals. If the trade issue with with China is resolved, this market can shoot higher. On the other hand, IF the trade war continues, the earnings of many international companies will start to decline and the fundamentals will change, impacting the overall economy. But for now, the Money Flow indicators are telling me the Big Boys are still NOT seeing this happen. If the Money Flow indicators start to turn negative, this could change the timing for the next Bear Market. It might happen sooner than anyone expects.
There were NO CHANGES to my market timing indicators after yesterday’s session. The NASDAQ and Russell 2K remain on Sell Signals. The Dow and SPX remain on Neutral Signals. So, with mixed signals I still plan to be cautious with my positions. It still appears that the markets are in some type of corrective mode with NO Trend in place. Whenever there is NO Trend in place, we take smaller positions.
The Tide remains Negative. The Dean’s List is neutral. The DMIs remain Negative.
The Sector Ratio stayed at 15-9 negative after yesterday’s session. The Strong List continues to be led by Real Estate, Household Produces, Insurance, Foods and Telecoms. These are all defensive sectors. This is NOT the List you want to see if you’re Bullish on the markets. The Weak Sector List continues to be led by Service, Energy, Material, Retail, and Semiconductors.
Gold (GLD) fell slightly again yesterday, buy my Money Flow indicator on GLD remains positive. This means that a few institutions are beginning to take a position in gold. Gold appears to be completing wave ‘e’ down of Wave 2 down of Major Wave 3 up. Gold (the metal) remains on a Sell Signal, and the Materials Sector (with gold) is still on the Weak Sector List. However now that I’m beginning to see some positive divergence in the indicators, it’s likely that gold is developing a significant bottom.
Model Portfolio: There were NO Changes to the Model after yesterday’s session. The Model continues to hold a ‘trial’ position (500 shares) of QID, the 2X inverse leveraged ETF of the NASDAQ-100. It also holds a small ‘trial’ positions (500 shares) of DXD, a 2X inverse leveraged ETF for the Dow and 1,000 shares of SCO, the inverse ETF for West Texas Crude Oil. The rest of the Model Portfolio, $60,559, remains in cash.
Yesterday, the volume portion of my VTI-volume indicator on SCO turned slightly positive, so IF crude oil continues to decline, the Model will increase its position in SCO, bringing it up to a full position. BTW, since Crude Oil began its decline late last year, there have been several small rallies along the way, each once could be considered as potential targets. Starting with the lowest first, the three most obvious are the 28 March high of 17.32. After that comes the 8 March high of 19.25. Then finally, there’s the 11 February high of 21.9, which is the ‘interim high between the first two lows of the decline. Normally, my target in a reversal pattern would be the interim high between the first two lows, which is 21.9. However, students should remember that we’re NOT trading a reversal pattern in crude. We’re trading a large triangle, one that could go on for months. I believe crude prices are going higher after the triangle completes. So, in this case, I’m only going to use the 19.25 level on SCO as my target. If this level is approached, I’ll re-evaluate the move and possibly change the target. But for now, I’ll stick with 19.25. Yesterday SCO closed at 16.0.
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
05-23-2019
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEU | 10 May 2019 |
NASDAQ | NEG | 20 May 2019 |
GOLD | NEG | 17 May 2019 |
U.S. DOLLAR | POS | 16 May 2019 |
BONDS | NEU | 21 May 2019 |
CRUDE OIL | NEU | 06 May 2019 |
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