Professor’s Comments November 14, 2018

Posted by OMS  at November 14th, 2018

The markets were choppy yesterday with the Dow ending down 101 points at 25,286.  The NASDAQ finished flat while the SPX dropped 4 points. Volume on the NYSE was moderate, coming in at 102 percent of its 10-day moving average.  There were 28 new highs and 151 new lows.

In yesterday’s Comments, I mentioned that the Dow would likely bounce in an attempt recover some of Monday’s losses before the next declining wave begins.  So now that the ‘bounce’ is out of the way, the Dow will likely begin its next objective which is a test of the 200-day moving average.  At yesterday’s close, the 200 is located at 25,028.  Holding this level is critical for the Dow now because the October decline already produced a ‘Rope Jump’ identifying the move as Wave 1 down.  So, IF the large cap index starts to move below the 200 now, it’s likely that impulsive Wave 3 down is underway. My target for Wave 3 down remains near or below the 23,500 level.

Students should recall that there are to downside targets on the board now once the Dow starts to break below the 25,000 level.  These targets are projected by two negative patterns that range from 23,800 on the high side to below 23,000 on the low.  For now, I’m splitting the difference and using 23,500+/-.  The reason for this is that at this point, I still can’t be sure that corrective Wave 2 up has completed.  Yesterday’s corrective action could have been wave ‘b’ down of an a-b-c pattern for Wave 2 up.  If this is the case, it means that Wave 2 up is still NOT complete and one more wave up (wave ’c’ up) will be needed to complete the pattern. Wave ‘c’ up, IF it occurs, could see the Dow trade back to the 25,600 level before Wave 2 up completes.  A break of 25,000 would negate this wave count and confirm that wave 3 down is underway.

There was a very small change in the A-D oscillator last night, so we need to be on the lookout for a Big Move within the next 1-2 days.  If the Big Move takes the Dow below the 25,000 level, things could start to get ugly fast.

One of the things that has me concerned now is the price of oil. Crude oil dropped 7 percent yesterday, which is the largest one day decline I can ever remember.  A lot of commentators are tying the decline to President Trump putting pressure on the Saudi’s to keep pumping. I’m not buying that. When I look at the charts of the international markets, it’s clear that the economies of the world are slowing.  In the past few weeks, I’ve mentioned that several international markets, including Europe, Canada, Australia, and China are all on Weekly Sell Signals. These signals are NOT something you want to fool with.  So, the price of crude is likely reflecting a reduction in demand for the product.

But still, the price of crude is not like a five dollar stock in a down draft.  It can’t go to zero, even though its been dropping like a rock since my VTI-volume timing indicator generated a Sell Signal.  At some point, crude should stabilize and begin to bounce.  It’s one of the reasons I continue to watch UCO, the Crude OIL ETF I use to generate the signal for crude on the cockpit.  BTW, the original Sell Signal for Crude Oil was generated on 17 October with UCO trading at 32.87.  Yesterday UCO closed at 20.31, down 2.95 points.  Wow!   Yesterday, the 2-period RSI on UCO closed with a reading of 0.01. I don’t know its possible for the RSI to go to zero??? In other words, crude should bounce today, which could make for a nice scalp trade.  Longer-term traders should wait until they see Green on the cockpit before establishing positions in crude.  Like I said, even though I expect a short-term bounce in crude, IF the world economies continue to weaken, we could see continued weakness in the price of crude.

BTW, the decline in the price of crude is not alone. Gold, Bonds, real-estate, housing stocks, are all being impacted by the Fed’s tightening.  Several months ago, I talked about how the Fed’s asset dump will act as a head wind to the markets.  So now with the asset dump at $50 billion a month, the headwind has turned into a hurricane.  The Fed is between a rock and a hard place.  It MUST raise cash to prepare for the next bailout. This is why the Fed’s $50 billion sell off will likely continue, despite the political pressure being put on them to keep interest rates low.

The Sector Ratio remained at 8-16 negative after yesterday’s session. The Strongest Sectors continue to be defensive in nature, with Service, Insurance, Food Drugs, Media, Household Products, and FoodDrug at the top of the List.  With 16 negative sectors, I don’t need a chart to tell me this is an EXTREMELY weak market. 

Gold was relatively flat yesterday. GLD fell 0.04 cents to 113.70.  It’s possible that gold needs one more decline to complete its 3-3-5 zig-zag pattern for Major Wave 2 down.  If this is the case, it will put downward pressure on mining stocks for the next few weeks. I’m just waiting for my VTI-volume indicator to turn positive before I buy gold. I still believe that once the decline in equities begins in earnest, gold and mining stocks will be a nice place to be. But not now.  Wait for the signal.

That’s what I’m doing,

h

Market Signals for

11-14-2018

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