Professor’s Comments November 7, 2018

Posted by OMS  at November 7th, 2018

The markets rose sharply yesterday.  The Dow rose 173 points the day after my market timing indicator generated a new Buy Signal. The large cap index closed at 25,635, after reaching a high of 25,652.  The NASDAQ and SPX rose 47 and 17 points, respectively.  Volume on the NYSE was low again, coming in at 76 percent of its 10-day moving average.  There were 51 new highs and 65 new lows. 

Yesterday’s rally on the Dow was likely the start of wave ‘c’ of Wave 2 up.  As I mentioned in yesterday’s Comments, wave ‘c’ up could be either a simple straight up rally to 25,800+ or be a more complex 3-3-5 Zig Zag structure that takes longer to develop.  At this point, there’s no way to tell. However, in either case, I wouldn’t expect the rally to go much beyond the 25,800 to 26,000 level. Once this Wave 2 rally completes, the market should begin an impulsive decline as Wave 3 down begins to unfold.  Pay special attention to the market timing indicators on the cockpit for equities now.  When they turn negative this time, the wave count suggests they are signaling the start of the next major leg down of the new Bear Market.

Last night’s election will result in a split Congress, with the Republicans keeping control of the Senate with the Democrats gaining the house.  It means that we’re going to have legislative gridlock on most issues facing the nation. It will be a lot harder for the President to move the country forward and grow the economy.  The tax cut for the middle class proposed by the President before the election just fell off the table.  So, with interest rates rising and the Fed tightening, it’s going to leave less money in the pockets of most Americans.  

The Sector Ratio rose to 7-17 negative after yesterday’s session. The Strongest Sectors were Service, Insurance, Media, Food Drugs, and Household Products.  The List remains defensive in nature.  And by being 7-17 negative, it also means that only seven sectors are leading the current rally.  Seventeen sectors are NOT participating in the rally. Hmmm?  These are NOT the kind of odds I want to see for me to go long.  I’d rather look for fade any rally near or above the 25,800 level.

Gold and mining stocks fell slightly yesterday.  GLD dropped 0.33 cents to 116.04.  Yesterday’s pullback caused the 2-period RSI on GLD to fall to an oversold reading of 26.6 without a trend in place. In other words, gold should rally today. The rally could be the start of Wave 3 up.  We’ll see.

BTW, I had a nice thing happen to me while I was teaching last night.  Bridget B. stopped by just before Class to give me a really nice cigar.  Bridget attended last week’s Class About Nothing last week and wanted to thank me for holding the Class.  And while I appreciated the cigar, I really appreciated all the nice things she said to me before Class which several of the new students got to hear.  Bridget, who probably knew nothing about cigars, had to go out of her way to buy the cigar and then take the time to hand deliver it to me.  Things like this don’t happen to most teachers. It was an extraordinary effort on her part and I can’t tell how much it meant to me.  Thanks Bridget.   

That’s what I’m doing,

h

Market Signals for

11-07-2018

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