Professor’s Comments November 10, 2017
Posted by OMS at November 10th, 2017
The markets fell hard yesterday. The Dow finished down 101 points at 23,462. The NASDAQ and SPX were down 39 and 10 points, respectively. Volume on the NYSE was moderate, coming in at 101 percent of its 10-day average. There were 73 new highs and 70 new lows.
Yesterday’s Big Move was predicted by Wednesday’s very small change in the A-D oscillator. The Dow was down over 250 points at its intraday low. The Big Move appeared to be triggered after the Senate revealed its tax plan, when key differences between the House version became apparent. The biggest losers in both plans are residents of high-tax states, like New York and California, who rely heavily on itemized deductions for state, local and property taxes. So, it was not surprising to see Wall Street concerned.
Yesterday’s decline did not produce Sell Signals on the cockpit. The DMIs on the Dow and NASDAQ remain positive, although the DMI on the Dow is now barely positive with a reading of 0.27. BTW, the last time the DMI on the Dow was negative was on 8 September, when the index was trading at 21,798. So, the DMI got close, but still no cigar.
Yesterday’s decline did cause one of my key indicators to turn negative. The VTI portion of my combination VTI-volume indicator turned negative. This is also the first time since 8 September that the indicator has been negative. However, before my VTI-volume indicator generates a Sell Signal, the volume portion of the indicator needs to turn negative as well, and right now the volume is still pretty positive. This tells me that the markets will likely bounce around a bit before any down turn starts to get serious.
The Dean’s List remains neutral as TWM, the inverse ETF for the Russell 2K, remains as the only inverse index on the List. TWM was only up 0.15 cents yesterday, as most of the decline was centered on the Big Cap industrials. TWM remains on a Buy Signal with positive PT indicators and a positive VTI-volume indicator. BTW, the Bollinger Bands on TWM have been narrowing for the past few weeks, so we could see the ‘Tube of Toothpaste’ get squeezed. Students should take a quick look at the ‘Nozzle and Tube’ formed by the Bollinger Bands on the Daily Chart of TWM. It’s classic.
IYT, the ETF for the trannies, fell 2.06 to 171.31 yesterday. This caused the VTI to fall below 30. So IYT is now in a Down Trend. Students holding transportation stocks do not want to see IYT fall below 168.14. If this happens, it would identify the move as Wave 1 down in a new Bear Market. The ETF remains on a VTI-volume Sell Signal. The PT indicators are also negative.
Thursday’s Sector Report fell slightly, causing the Sector Ratio to turn negative. The Ratio is now 11-13 negative. In my Comments yesterday, I mentioned that the Financials and Banking Sectors had large negative Delta Trend Scores on Wednesday. So in yesterday’s trading, we saw how stocks in these sectors got pounded. Like I said, both sectors are well represented in the Dow, and when they started to decline, they took the Dow down with it. BTW, the Financials and Banks will be among the hardest hit sectors IF the proposed tax bill is delayed or fails. More disposable income, which would result from a tax decrease, tends to generate more loans for the Banks. The Financials benefit because a lot of people will invest some of their tax savings in financial instruments. So, a tax decrease is always good for these sectors. Anything that jeopardizes or delays the proposed tax decrease is bad for these sectors.
The Strong Sector List continues to show Energy, Semis, Cap Equipment, Computers, and Real Estate leading the List. The Weak Sectors were led by Consumer Products, Telecoms, Household Products, Media and Food. The Transportation Sector was one of the Sectors that moved from the Strong to the Weak List.
Continue to stay in stocks and ETFs in the strong sectors, but make sure you have protective stops in place. Manage these stops aggressively. As the price of the stock moves up, make sure you move your stop up too. Also think about taking a few bucks off the table at current levels. Continue to watch the Sector Ratio closely, especially now that the Ratio has turned negative. A negative Sector Ratio means that more Sectors are now moving lower than moving higher. BTW, The Tide is also negative, so not only are more Sectors moving lower, more stocks on the NYSE are also moving lower. Yeah, we still don’t have Sell Signals from the cockpit yet, but we now have a clear warning that things are not all that great with the market.
Please be careful now.
That’s what I’m doing,
h
Market Signals for
11-10-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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