Professor’s Comments May 4, 2018

Posted by OMS  at May 4th, 2018

The markets had another choppy session yesterday, falling hard after the open and then rallying into the close.  It was a wild ride.  The Dow finished up 5 points at 23,930.  The large cap index got as low as 23,531 intraday, entering my Buy Zone of 23,500-23,800.  The NASDAQ and SPX finished the day down 13 and 6 points, respectively.  Volume on the NYSE was moderate, coming in at 109 percent of its 10-day moving average.  There were 55 new highs and 121 new lows. 

Yesterday’s large intraday decline of 394 points was the Big Move predicted by Wednesday’s small change in the A-D oscillator.  The Big Move turned into a multiple cigar day for me as I was doing a lot of buying when the Dow approached its lows.  I exited all my trades near the close because my VTI-volume indicator remains on a Sell Signal.

Yesterday’s decline was likely part or all of sub-wave ‘c’ down of Wave ‘e’ down of the large triangle that has been developing since 26 January. If this is the case, Wave ‘e’ down could have ended yesterday. We won’t know for sure until the Dow breaks above the 24,600 level, which is the upper boundary of the large triangle.

Meanwhile, students should continue to expect more choppy trading until the breakout occurs.

The BLS will be releasing the results of the April Jobs Report at 8:30 today.  This could move the market.  Right now, with mixed indicators, the market only positive thing we have to lean on is the triangle pattern. Triangles are consolidation patterns where the market rests.  The odds are high that once the triangle completes, prices will leave the triangle in the direction that they entered the pattern.  In this case, the direction should be up.

Also, triangles usually form as Wave 4 in a five-wave pattern.  So, IF this is the case with the current triangle, the next wave should be Wave 5 up, which should take the Dow to new all-time highs.  We’ll see.

On the other hand, IF the market breaks below the lower support line of the triangle, currently near 23,500, all positive bets are off.  A break below 23,500 would be EXTREMELY negative and would signal the start of a new Bear Market.

Students should also be watching the character of any market move now.  If the Dow starts to rally after the Jobs Report, the move should start to look impulsive.  Remember, we’re looking for the start of a significant Wave 5 up.  There should be no baby steps once the break out from the triangle occurs.  The move must be impulsive!

It should also start to move the indicators into the TREND MODE.  Wave 5’s are places where the market trends.  If the indicators continue to remain in the NO TREND mode, the market is NOT in Wave 5.  This will cause me to re-evaluate the wave count.  But for now, I MUST assume the completion of Wave 4 and the start of Wave 5 up is near.

The VTI portion of my combination indicator is currently reading 33.04, so it’s still showing NO TREND conditions.  This indicator MUST not fall below the 30 level during the next few days, otherwise the Dow will enter a down trend.  This is one of the reasons I took profit and exited all of my trades (except gold) after yesterday’s session.  I never like to be long a lot of stock before a Jobs Report, and with the VTI so close to the 30 level, I remain cautious.  If I’m right, and the Dow starts to break above 24,600 in the days after the Jobs Report, it should cause my combination VTI-volume indicator to turn positive.  If this happens, I’ll start to hold my long positions.  But not now.

The Sector Ratio is still way too negative for me to be holding long positions.  Yesterday’s trading action did not change the Ratio.  It remains at 20-4 negative.  Healthcare, Energy, Utilities and Leisure continue to lead the Strong List. 

The Weak Sector List continues to be led by Household Products, Foods, Semis, Cap Equipment, Banks, and Financials.  I’m still not interested in shorting any of these sectors now, because the Dow is probably developing the final leg of the Bullish triangle now.    However, IF the Dow should break below the 23,500 level, that would change everything.

Gold and most mining stocks rose during yesterday session.  Gold still appears to be completing the final waves of a Bullish triangle pattern for Major Wave 2 down.  My combination VTI-volume indicator for gold remains on a neutral signal.  If this indicator turns positive now, I’ll become aggressive with my purchase of gold, silver and mining shares.

Waiting for the Jobs Report.

That’s what I’m doing,

h

Market Signals for

05-04-2018

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