Professor’s Comments November 8, 2018

Posted by OMS  at November 8th, 2018

The markets rose sharply again yesterday in a post-election rally.  The Dow finished up 545 points, closing at 26,180, which was slightly above my upper target for Wave 2 up. The NASDAQ and SPX rose 195 and 58 points, respectively. Volume on the NYSE was low again, coming in at 87 percent of its 10-day moving average.  There were 80 new highs and 51 new lows. 

Yesterday’s relief rally was likely wave ‘c’ up of Wave 2 up.  With the Dow closing above its Upper Bollinger Band, any close below the Upper Band now will generate a Bollinger Band Sell Signal.  The 2-period RSI on the Dow and SPX are also EXTREMELY overbought (RSIs >96) with NO Trend in place, so they should begin to pull back today.  Students should watch to see if the pullback starts to gain momentum, which would be a signal that the first wave of Wave 3 down is underway. 

The Fed will be announcing its latest policy on interest rates at 2pm today.  Before the election, President Trump was critical of Chairman Jay Powell for raising interest rates, fearing rising rates would slow-down the economy. But now that the election is over, I wonder if the political pressure is still on the Fed to keep rates low, or will they raise them like they said they would before the pre-election posturing began. If they continue to raise rates, expect the decline in the housing market (and housing stocks which have already been slammed) to continue.  Housing is a big segment of the American economy, as it not only effects home-building, it also impacts appliance, furniture, and carpet manufacturers as well.  Rising rates also impact the auto industry, another large component of consumer spending.  So, pay attention to today’s Fed announcement.  It could trigger the start of Wave 3 down.

The Sector Ratio rose to 9-15 negative after yesterday’s session. The Strongest Sectors were Service, Insurance, Food Drugs, Media and Household Products.  The List remains defensive in nature.  With the Dow overbought at target levels and the Sector Ratio having only reached 9-15 negative, we need to pay attention to any large moves to the downside now.  This is because my initial target for Wave 3 down is near or below the 23,500 level, with a decline below 23,000 possible.  Yeah, I know that doesn’t sound likely now with the Dow back above 26,000.  But just remember back in early October when the Dow was slightly above its target of 26,660 and I was talking about a decline to 24,000.  At the time, none of the commentators on CNBC or Fox thought this was possible.  They don’t use technical analysis or look at charts.  I do.  So IF Wave 2 up on the Dow completes near current levels, technical analysis suggest the next wave of this Bear Market should be down to the 23,500 level or below. This is why today’s Fed announcement is so important.

Gold was flat yesterday with mining stocks falling slightly.  Students should note how the Bollinger Bands on GLD’s daily chart are narrowing and forming the nozzle of a ‘Tube of Toothpaste’.  This tells me that once the decline in equities begins, gold should begin to shoot higher.  Gold and the miners remain on a neutral signal.  The 2-period RSI on GLD remains oversold (25.9) with No Trend in place. In other words, gold should rally from current levels.  Any rally could be the start of Wave 3 up.

Waiting for the Fed announcement.

That’s what I’m doing,

h

Market Signals for

11-08-2018

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