Professor’s Comments October 24, 2018

Posted by OMS  at October 24th, 2018

The markets fell hard early yesterday, then bounced into the close.  The Dow finished down 126 points, after being down by 548 points intraday.  The NASDAQ and SPX closed down 31 and 15 points, respectively.  Volume on the NYSE was high, coming in at 115 percent of its 10-day moving average.  There were 8 new highs against 496 new lows.  Also, the number of declining issues swamped advancers by a 2090 to 929 margin.  The increasing number of new lows and the 2:1 increase in declining issues over advancers means the downside momentum is gaining strength.  This is never a good sign for the markets.

One of the more interesting things about yesterday’s early decline and late recovery was the slight change in pattern it produced.  While several of the commentators on Fox Business News were cheering the late day recovery, I noted that all the late bounce did was produce the right shoulder of a more negative pattern.

If you recall, I have been using a target level slightly below the 24,000 level on the Dow, primarily because this is the level where the Ending Diagonal for Wave 5 up started last April.  Ending Diagonal Patterns usually trade down to where they began. However, because yesterday’s decline and late rally, produced a possible right shoulder of a new Head & Shoulders Pattern, it is now possible the Dow could fall to the 2 April low of 23,345 before the pattern completes.   In other words, there are now two patterns on the Board that suggest lower prices.  One between 23,345 and 23,900 and another closer to 23,000.

To get the 23,000 target number, I simply measured the ‘Head’ which is about 2,050 points from the 3 October high of 26,952 to the neckline near the 200-day moving average.  I then subtracted those 2,050 points from the moving average to get the 23,000 level. 

So, for now, I’m going to split these two target levels and lower my new target for Major Wave 1 down to about the 23,500+/- level. 

M market timing signals for the Dow, NASDAQ, SPX and Russell 2K remain on Sell Signals. Small cap issues on the RUT are getting hit the hardest by the tightening of the money supply and are leading the way down.  The RUT is well below its 200-day moving average and continues to pull the 50 down.  The 50 is now only 27 points above the 200, so if the RUT doesn’t rally soon, a moving average cross is inevitable.  This would be an EXTREMELY negative development for small cap stocks going forward.  A moving average cross on the RUT will also have a negative impact on the other equity indexes.  

The Sector Ratio remained at 3-21 negative after yesterday’s session.  The only Strong Sectors are Utilities, Media, and Telecoms.  All are defensive in nature, propped up by institution money leaving the traditional growth sectors.  This is NOT what you want to see if you’re Bullish.    

Gold had a nice rally early yesterday, and my shares of NUGT and GDX soared at the open.  I booked profits early after seeing the EXTREMELY overbought conditions on the 2-period RSI with No Trend in place.  I then traded gold several times during the day, buying and selling mining shares whenever the indicators gave say so.  The trades produced a very nice day for me.

Yesterday’s decline changed my market timing indicator for Crude Oil back to negative after being neutral for one day.  So, I’m no longer interested in Oil or Energy related shares.  I’ll continue to watch the events in Saudi Arabia with interest, but until I see a Green Signal from Crude Oil, I’m on the sidelines.

I continue to focus on gold.  If neckline support on the Dow at 24,950 is broken, gold and mining shares should begin to move significantly higher.

That’s what I’m doing,

h

Market Signals for

10-24-2018

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