Professor’s Comments October 2, 2018

Posted by OMS  at October 2nd, 2018

The markets had another large intraday reversal yesterday, moving up in the morning on news that Canada agreed to a new trade deal with the U.S. but giving up a good portion of the gains by the close.  The Dow finished 193 points higher at 26,737.  Intraday, the Dow got as high as 26,737, which was only 31 points from its 21 September high of 26,769.  The NASDAQ was down 9 points while the SPX finished up 11 points.  Volume on the NYSE was moderate, coming in at 100 percent of its 10-day moving average.  There were 92 new highs and 156 new lows. Students should note the bearish divergence in breadth continues.  As a matter of fact, yesterday’s new lows were the most recorded since 28 June.   This is amazing when you consider that the Dow was trading at 24,216 back then.  Hmmm? 

Let’s talk about this for a moment.  So, on the same day the Dow was just 31 points from its all-time record high, the number of new lows was lower than when the Dow was trading over 2,500 points lower.  Wow!!! Also, yesterday the number of advancing issues on the NYSE exceeded the number of advancing issues by a 1794 to 1215 margin.  Students should understand that yesterday’s disparity between advancers and decliners was not even close.  It was a flat out rout!  And it all happened on a day when the Dow finished 193 points higher.  Again, Hmmm?

This incredible divergence in breadth continues to tell me that this market is NOT healthy.  Yeah, it looks pretty good from the outside, but when I measure the internals, it’s sick! 

Yesterday’s trading formed another ‘Hanging Man’ candlestick pattern on the Dow. Again, the Hanging Man is a bearish candlestick pattern that usually appears near the end of a major market move.  So, we’re seeing multiple bearish candlesticks forming at a time when The Tide, which is our primary market breadth indicator, is negative.  Be careful!

There were no changes to any of my key market timing indicators after yesterday’s session.  The VTI-volume indicator for the Dow remains positive, while the same indicator on the NASDAQ remains neutral. The VTI-volume indicator on the Russell 2K is negative.

I bought a few ‘trial’ shares of SQQQ yesterday when I saw the Q’s unable to hold its intraday high.  SQQQ is a highly leveraged inverse ETF that rises when the NASDAQ-100 (QQQ) declines. I plan to hold these shares as a position trade and will add more IF / when my VTI-volume indicator turns negative.  BTW, Christine Lagarde’s comments in a Washington speech yesterday that global growth may have plateaued is one of the reasons I established my early position.   When she said the IMF’s economic forecasts have become ‘less bright’ and ‘the factors that were previously identified as risks have now materialized’, I took her at her word.  Her words just confirmed what I’m seeing from my global indicators.  Folks, when you hear the head of the IMF say something even slightly negative, it’s usually a sign that things are already bad. Global financial leaders hardly ever say things like this.

My market timing indicator for gold and the Dollar remains neutral, but negative for Bonds.  The indicator for Crude Oil remains positive.  BTW, UCO, the ETF I use for my crude oil indicator, made a new high yesterday closing at 37.98.   My VTI-volume indicator on crude turned positive on 19 September with UCO trading at 33.4.  Again, it pay$ to watch the signals.

The Sector Ratio fell to 13-11 after yesterday’s session.  Students should take note of the change.  Once again, we can see that even though the Dow was up big on the day, the number of sectors that participated in the move are declining.  The Strong Sector List continues to be dominated by ‘defensive’ sectors like Household Products, PharmaBio, FoodDrugs, Energy, and Telecoms.

The Weak Sector List was led by Banks, Consumer Products, Real Estate, Retail, and Financials.

With the Sector Ratio approaching 50-50, students should be extremely cautious about the stocks they’re holding now. 

Gold (GLD) fell 0.19 cents to 112.57.  Most of the miners were flat.  My VTI-volume indicator for gold remains on a neutral signal.  However, the same indicator for the gold miners remains positive.  The positive divergence between the basic metal and the miners is telling me that gold could be nearing completion of its Major Wave 2 down.  I added to my shares of NUGT yesterday.

That’s what I’m doing,

h

Market Signals for

10-02-2018

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