Professor’s Comments November 1, 2018

Posted by OMS  at November 1st, 2018

The markets rallied sharply again yesterday.  The Dow finished up 241 points, closing at 25,116.  The NASDAQ and SPX were up 144 and 29 points, respectively.  Volume on the NYSE was heavy, coming in at 112 percent of its 10-day moving average.  There were 24 new highs and 142 new lows. 

Yesterday’s explosive rally was caused by a combination of bargain buying and short covering.  Once a few buyers came back, it scared the shorts into covering their positions.  This is what tends to produce the large spike rallies that often occur in Bear Markets.  It’s one of the things that helps identify them as Bear Market rallies.

From a wave count perspective, yesterday’s rally was likely the completion of wave ‘a’ up within Wave 2 up.  If this analysis is correct, yesterday’s late day pullback was likely the start of wave ‘b’ down.  This wave should end somewhere between the 24,750 and 24,950 level.  Then once wave ‘b’ down completes, the Dow should begin to rally again, possibly to the 25,800+ level to complete wave ‘c’ up of Wave 2.  This rally will likely occur as we move into the election, possibly lasting a day or two later.

Yesterday’s rally caused my VTI-volume indicator on the Dow to turn neutral.  The same indicator on the NASDAQ remains negative.  If you looked at the cockpit late last night, you probably saw the VTI-volume indicator for the Dow being shown as RED.  I changed it early this morning after realizing my data feed was experiencing problems and did not update the data for the Dow.

The revised data also caused the Hi-Lo indicator, Summation Index, and A-D oscillator to turn negative, making The Tide neutral.  The change was expected as these indicators tend to flip-flop during a wave 2 retracement.  The Dean’s List remains negative. 

The Sector Ratio increased to 5-19 negative after yesterday’s session.  The Insurance, Household Products, and Food Sectors joined Media and FoodDrugs at the top of the Strong List.  Students should note that the sectors receiving the most money now are all defensive sectors. In other words, the large institutions are using the rally to move out of technology and into more defensive issues like food and household products.  There are not the sectors you want to see at the top of the Strong List if you are Bullish.  It simply means that the Big Boys are preparing themselves for a difficult time ahead.

BTW, one other comment about the rally we have seen during the past two days.  It’s been almost straight up.  So, IF this is a retracement rally, then the Principle of Alternation should start coming into effect.  This will help us identify it as a Wave 2. 

The Principle of Alternation says that if wave ‘a’ of a retracement wave is simple or straight up, then wave ‘c’ should be complex.  It also says that if wave ‘a’ was short, in this case two days, then wave ‘c’ up should be twice as long.  So, with the election only three trading days away, it’s possible that the rally (IF we get one) will last a day or so beyond the election.  The rally into the election should also be complex, meaning that it should NOT be straight up.  It should be more of an a-b-c affair.  If we see this complex trading action going into the election, it will confirm the rally as retracement Wave 2 up.  Then once confirmed, I will start establishing my short positions for Wave 3 down.  It could be a nice ride.  Wave 3’s are always great places to trade, especially on the downside.

Gold (GLD) pulled back again yesterday, and now sits on its 200-day moving average with an EXTREMELY oversold 2-period RSI.  It should bounce today.  Remember, gold (the metal) is on a Buy Signal, and as long as it remains on a Buy, the 2-period RSI can be used to identify places where it’s ‘On Sale”.  Yesterday was one of those times.

That’s what I’m doing,

h

Market Signals for

11-01-2018

One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.