Professor’s Comments May 30, 2018

Posted by OMS  at May 30th, 2018

The markets fell hard at the open on Tuesday with large cap internationals and transportation issues getting hit especially hard.  A late rally into the close paired the losses somewhat, but the Dow still finished down 393 points at 24,361.  Technology issues on the NASDAQ fared a lot better, only dropping 37 points.  The SPX was down 31 points.  Volume on the NYSE was moderate, coming in at 112 percent of its 10-day moving average.  There were 50 new highs and 87 new lows.

Last week, when the market did NOT continue higher after its impulsive breakout from the triangle pattern, I mentioned the possibility that Wave 4 might not be over.  Instead, another wave down, or final wave ‘e’ down within the triangle could be developing.  I gave several targets for the pullback, which were near moving average support.  I believe this is what we saw yesterday.

Yesterday’s decline was triggered by political turmoil in Italy that caused the euro to fall and the dollar to rise.  This past weekend, Italy’s prime minister appointed former International Monetary Fund official Carlo Cottarelli as interim prime minister to form a new cabinet and restore political order within the country.  This political turmoil has rekindled fears that Italy, Europe’s third largest economy, will leave the EU. Last weekend I mentioned how a rising dollar is putting pressure on the large international stocks in the Dow.  We saw that yesterday as the big caps and bank stocks led the decline.

BTW, I believe that once these political problems settle down, it will be good for the U.S markets as a lot of scared European money will find its way into U.S. Bonds and equities.  Unlike Italy which has had 65 different government systems in the 75 years since WWII, the U.S. political system is ‘relatively’ stable.  Also, the earnings here in the U.S are good and most companies are cash rich, so, once the markets complete their sympathy sell-off for Wave ‘e’ down within Wave 4, the Wave 5 rally should take stocks to new highs. Be patient.

Yesterday’s decline moved my combination VTI-volume indicator on the Dow to a Sell Signal.  The same indicator on the NASDAQ remains on a Buy Signal.  Like I said in my WSR, I continue to favor domestic technology and small cap stocks on the Russell 2K now.  These issues will be less impacted by a rising dollar.

During the weekend, I also mentioned the importance of buying and holding stocks in the strongest sectors.  Yesterday was a good example of this, as most semiconductor and healthcare stocks avoided the big losses of the large cap internationals.  Intel (INTC) was up for most of the day but finished down 0.12 cents.  Micron Technology, MU, was up 1.27 amid all the carnage.  Amazing what staying in the strongest sectors will do for a portfolio.

Gold and the miners were mostly flat yesterday.  GLD finished down 0.02 cents at 123.19.  My combination VTI-volume indicator on GLD moved to a neutral signal after yesterday’s trading.  The pattern suggests that gold is getting ready to enter its next Major Wave up in the weeks ahead, but now with a neutral VTI-volume indicator, that rally will have to wait.

The Sector Ratio moved to 15-9 negative yesterday.  The strong sectors were led by Healthcare, Energy, Semiconductors, Consumer Products and Computers.  The Weakest Sectors were Real Estate, Service, Household Products, Banks and Financials.  I would avoid these weak sectors like the plaque!

That’s what I’m doing,

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Market Signals for

05-30-2018

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