Professor’s Comments November 16, 2018

Posted by OMS  at November 16th, 2018

The markets fell early yesterday then rallied into the close. The Dow finished up 209 points at 25,289.  The large cap index had an intraday swing of over 567 points!  I told you to expect some choppy trading, but 567 points was a bit over the top. It doesn’t change anything. The NASDAQ and SPX finished up 123 and 29 points, respectively. Volume on the NYSE was moderate, coming in at 108 percent of its 10-day moving average.  There were 21 new highs and 241 new lows.

As I wrote about in yesterday’s Comments, yesterday’s early decline and late rally was likely part of sub-wave 2 up.  This wave is retracing part of the 1,343 point decline of sub-wave 1 down of Wave 3 down.  The retracement is likely forming the ‘Blade’ of negative Hockey Stick Pattern which projects to the 24,000+ level or lower once complete. 

The Dow got as low as 24,788 yesterday which is not noteworthy by itself.  However, the fact that it punched through 25,032 for the second time is. The 25,032 level is where the 200-day moving average is located, so even though the Dow rallied hard after trading below the 200, it showed us that the 200 is not like a stone wall.  It’s vulnerable.

Also, even though the Dow rallied hard yesterday, the decline since 8 November has been characterized by 5 lower lows.  The effect of these lower lows is that they continue to bring the 50-day moving average on the Dow closer and closer to the 200.  Remember, the Dow is the only major index now that is not in a Down Trend. Its 50-day moving average is still above its 200.  But now that the Dow is trading below its 200, the 50 is slowly heading down. 

BTW, I mentioned that the NASDAQ, SPX, and RUT are already in 50/200 moving average downtrends. To give you an idea about how significant this is, you must go back to 31 May 2016 on the NASDAQ to see a time when the 50 was below the 200.  The SPX hasn’t had its 50 below the 200 since 8 April 2016.  That’s a looooong time for an index to be in an Up Trend.  And now both major indexes are in downtrends.  Hmmm?  Another way of looking at this is that except for 30 stocks on the Dow, all the other major American equity indexes are now in down trends.  You’re not hearing this from Fox News or CNBC.  They’re still cheerleading whenever the Dow rallies and not telling you what’s really happening with the markets.

Anyhow, I would expect the Dow to continue to trade sideways to form its negative ‘Bade’ for the next few days.  But now that the 200 has been violated, the next decline can begin at anytime now.  Yesterday’s early decline and late pop created enough of an a-b-c pattern to satisfy the requirements for a sub-wave 2 retracement.  So be careful the next time prices start to approach the 25,000 level.

Yesterday I mentioned that IF the Dow traded back to the 25,300 level, I would begin to establish a few short positions and that’s what I did.  So now I will begin holding these positions overnight.  I want to have something negative on just in case the Dow begins to break lower.  With my market timing indicators for equities on Sell Signals and a pattern that suggests sub-wave 2 of Wave 3 down is nearing completion, I believe the odds for a significant decline are in my favor.

The Sector Ratio improved to 11-13 negative after yesterday’s session.  The sectors added to the Strong List had RS ratings of zero, so seeing them near the bottom is not a concern.  If the market declines today, odds are these sectors will be off the List by tomorrow.  However, the one new addition that caught my eye was the Materials Sector. Attention.  This is the sector that includes gold.  So even though the Strong List improved slightly yesterday, seeing the Materials Sector appear on the List is not a positive for the markets. 

The Strongest Sectors continue to be defensive in nature, with Household Products, Service, Media, Food Drugs, and Leisure at the top of the List. 

Gold and mining stocks rose slightly yesterday.  GLD was up 0.13 cents to 114.77.  Yesterday’s rise was stopped by the 50-day moving average located at 115.06.  So, before I can get excited about gold, I need to see it break above its 50.  By dropping below its 50 on 9 November, gold showed that it likely needed another leg down to complete its 3-3-5 zig-zag pattern.  So even though it rose slightly yesterday, I need to see it back above its 50 before I’m interested in the metal.

Same for Crude Oil.  Yesterday’s oil numbers showed a significant surplus of crude.  So, with the available supply rising, I would expect continued weakness in the price, even though UCO is at attractive levels now.  The price of UCO has stabilized near the 21 level for the past two days, and now that the election is over, it’s likely the Saudis will start to slow production to remove some of the surplus oil.  It’s one of the reasons I’m watching crude on the short-term bars.  My VTI-volume indicator on crude remains on a Sell Signal, but the volume position of the indicator has started to rise.  Hmmm?

That’s what I’m doing,

h

Market Signals for

11-16-2018

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The Hockey Stick Pattern
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