Professor’s Comments October 19, 2018

Posted by OMS  at October 19th, 2018

The markets fell hard yesterday.  The Dow closed down 327 points at 25,379.  The large cap index was down over 471 points at one point during the day. The NASDAQ and SPX were down 158 and 40 points, respectively.  Volume on the NYSE was low, coming in at 89 percent of its 10-day moving average.  There were 9 new highs and 245 new lows.

Yesterday’s intraday decline and late bounce appeared to be more corrective than impulsive.  IF this is the case, it’s likely that last Tuesday’s 547 point rally was wave ‘a’ up within Wave 2 up and yesterday’s decline was corrective wave ‘b’ down.  This means that once wave ‘b’ completes, a significant rally should occur to complete wave ‘c’ up of Wave 2 up.

It also means that Wave 1 of Major Wave 1 down bottomed on 11 October at the 24,900 level.  So once Wave 2 up completes in a few weeks, a devastating Wave 3 down should begin.  But like I said, that’s probably still a few weeks off.  If I’m right about yesterday’s decline being a corrective decline within Wave 2 up, then the next significant move in the markets should be up.  Looking at the charts, the Dow could trade as high as the 25,900 level in wave ‘c’ up.  That’s about 500+ Dow points from current levels.  

One of the reasons I’m thinking that yesterday’s decline was wave ‘b’ down of Wave 2  was the corrective late bounce.  The rally was driven by several large institutional buy programs that kicked in between the 2765 and 2770 level on the S&P, which is also very close to where the 200-day moving average is currently located.  A similar thing happened last Thursday when large institutional buying started to come in near the 2750 level.  In other words, the Big Boys are putting large sums of money to work near the moving averages.  This is usually a sign that s short-term bottom is near. 

However, looking at the sectors, we can see that they are EXTREMELY negative and defensive at this point, so while the institutions are buying near the moving averages, they are NOT buying the kind of stocks that one would associate with growth. Utilities, Food and Media stocks don’t lead markets higher.  People buy them when they plan on hunkering down for a long, cold winter.

Anyhow, that stock market ‘winter’ is likely still a few weeks away.  The mid-term elections, scheduled for 6 November, are now only 12 trading days away.  Depending on the outcome, they could trigger the next sell-off (Wave 3 down).

At this point, my indicators and Lists are still on Sell Signals.  But remember, the Hi-Lo indicator has been oscillating between negative and positive for the past few days, and this indicator is usually one of the first to signal a Tide change.  If the market starts to move higher on a guarded up-down climb, the odds suggest that  wave ‘c’ up is starting.  Then once traders begin to recognize what’s happening, the combination of short covering and new buying should add fuel to the rally.  If this happens, don’t get too excited.  Remember, the rally is only part (the final leg) of a corrective Wave 2 up.  Once it completes, the market could go into free-fall. 

If the rally starts, I’ll continue to scalp it.  I won’t be holding stocks overnight.  The conditions are still way too dangerous to be buying and holding.  Think about this… if the Dow rallies 300+ points, and approaches the 25,700 level, the upside is probably limited to about 200 points.  These 200 points must be weighed against a possible decline of 2,000 Dow points because my target for Wave 1 down is near or slightly below the 24,000 level.  Those 10-1 odds are a poor bet for longs, especially given the pattern, indicators, and Lists.

It’s one of the reasons I continue to watch gold closely.  Yesterday the metal rose slightly, continuing to develop a small ‘blade’ on the Daily Chart.  My VTI-volume timing indicator for gold remains on a Buy Signal, which tells me the developing ‘blade’ should provide the springboard for GLD to ‘Jump the Ropes’ which would be the next step in its turning process.  My VTI-volume indicator for the miners is also on a Buy Signal.

BTW, if you’ve been watching, the VTI-volume indicator for Crude Oil turned negative a few days ago.  Since the signal change, crude has been dropping steadily.  But I’m NOT all that negative on crude oil and energy.  Just the opposite.  Yesterday, the volume portion of my VTI-volume indicator rose significantly on several of the energy stocks I follow.  So, If the market starts its wave ’c’ rally, one of the sectors I will be watching closely is energy.  The charts of energy stock are telling me that most are still in Up Tends, and most are oversold with No Trend in place.  Hmmm?  Where have I seen these conditions before?  Rifle Trades?

That’s what I’m doing,

h

Market Signals for

10-19-2018

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