Professor’s Comments November 21, 2018

Posted by OMS  at November 21st, 2018

The markets fell hard again yesterday as sub-wave 3 of Wave 3 down continues to unfold. The Dow finished down 552 points at 24,466.  Since sub-wave 3 down began two days ago, the Dow has lost 948 points. The NASDAQ and SPX were down 120 and 49 points, respectively. Volume on the NYSE was heavy, coming in at 110 percent of its 10-day moving average.  There were 32 new highs and 572 new lows.

Yesterday’s decline on the Dow started by breaking key support at the 25,000 level.  And once this level was broken, the impulsive move down confirmed that sub-wave 3 of Wave 3 down was underway.  Like all impulsive waves, sub-wave 3 down should have five individual waves, so with an almost 10-90 down volume day (yesterday was 11-89), the markets should bounce slightly going into Thanksgiving. This bounce, which I’ll call micro-wave 2, should take the Dow back near the 24,600 level.  Then once this small retracement bounce completes, the Dow should resume its decline toward the 23,500 level, possibly lower.  Given the relative short Wave 2 ‘Blade’, I’m now inclined to go with a lower number, but for now I’ll stay with 23,500+/-.

I took profits on my short positions after yesterdays decline and will now look to re-establish these shorts at higher levels.

My key market timing indicators for the Dow, NASDAQ, SPX, and RUT remain on Sell Signals.  The Tide, Dean’s List, and Sector Ratio remain negative.  The A-D oscillator only had a reading of -125 after yesterday’s session, so it’s not terribly oversold.  Usually when the indicator moves below -150 for 2-3 days, we’ll get a significant bounce.  But with a reading of only -125, it’s telling me we have a lot more down side to go before the current decline ends.  BTW, consecutive readings below -200 usually only occur during a crash, so right now the oscillator is telling us the current decline is NOT a crash, just an orderly decline impacting technology mostly.

From a technology perspective, the NASDAQ-100 (QQQ) closed at 159.16 after falling as low as 157.13.  Yesterday, with the Q’s trading at 162.06, I mentioned that a small Head & Shoulders Pattern had developed on the Q’s with a target near the 143 level.  So, at 159.16, it appears that the decline in the FANG stocks is far from over.  Be especially careful if you own any of these stocks now.

The Sector Ratio decreased to 1-23 negative after yesterday’s decline.  The only sector on the Strong List was Household Products.  With a ratio of 1-23 negative, I don’t need to say anything more about the strength of this market.  BTW, students should think about how the Sector Ratio turned negative back in early October telling us the market decline was coming. After being positive for months, the Sector Ratio turned neutral (12-12) on 3 October.  It turned negative (10-14 negative) the following day with the Dow trading at 26, 627.  Hmmm?  How good it this for an indicator???  Remember, the Sector Ratio is generated by an algorithm that looks at the individual sectors.  It’s not based on opinions.  It’s not like the cheerleaders on CNBC or Fox.  It simply looks at the market and tells you where the strength is.  The algorithm gave technology a zero RS reading on 10/3, and then bounced it off the Strong List on 10/4.  Technology has been on the Weak List and getting hammered ever since.  Apple (AAPL) has declined from 227.99 on 10/4 to 176.98 yesterday.  Facebook (FB) fell from 158.85 to 132.43.  Amazon dropped 414 points during the same period.  Hmmm?  So yesterday when I heard all the commentators on Fox talking about it being a good time to buy the FANGs, I just looked at the Sector List and thought …are you nuts???  Here’s the Deal: I’m not buying any technology stocks until I SEE technology back on the Strong List.  Period! Actually, I’m not buying anything until I see that sector on the List. AND, I want to see the Sector Ratio positive before I become aggressive on the long side.

This is one of the reasons I’m shying away from gold now.  The Materials Sector, which includes gold, is NOT on the Strong List.  This and the pattern tell me that gold has likely NOT completed its 3-3-5 zig-zag pattern for Wave 2.  If this is the case, gold (the metal) could fall to the 1125 to 1150 level before Wave 2 completes.  Yesterday gold closed at 1224.

Same for Crude Oil.  Energy fell off the Strong List on 10/10 and hasn’t been on the List since.  Hmmm?  Meanwhile the price of UCO, the Crude Oil ETF, has dropped from 35.26 on 10/10 to 18.75 where it closed yesterday.  So, do you still think the FANGs, Gold or Crude Oil are Buys?  Even with UCO at 18.75, I’m NOT buying…. yet.  I don’t know about you, but in this market environment, and with the history of the Sector List, I’m NOT buying anything until I see it appear on the Strong List.

With a Sector Ratio of 1-23 negative, I’m looking to short this market.

Happy Thanksgiving! Take time to enjoy your family.

That’s what I’m doing,

h

Market Signals for

11-21-2018

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