Professor’s Comments October 25, 2018

Posted by OMS  at October 25th, 2018

The markets got clobbered yesterday.  The Dow dropped 608 points, closing at 24,583.  The NASDAQ and SPX closed down 329 and 85 points, respectively.  Volume on the NYSE was high, coming in at 121 percent of its 10-day moving average.  There were 25 new highs against 483 new lows.  It wasn’t pretty.

Looking at the wave count, yesterday’s decline was likely sub-wave 5 down of Wave 1 down. If this analysis is correct, it means that the markets should bounce today, possibly to the 25,100+ level for a small Wave 2 up, before Wave 3 down begins and the Dow resumes its decline to the 23,500+/- level.  Given that my VTI-volume indicator for the major markets is on a Sell Signal, I will be watching the 25,100 level as a place to establish a few short positions using inverse index ETFs.

There are a few reasons why I believe the markets will be trading significantly lower in the weeks ahead. First among these reasons is the patterns.  Yesterday, once the 24,950 level was breached, the Head & Shoulders Pattern I talked about yesterday started to come into effect. This H&S pattern has a downside target near the 23,000 level.  The larger Ending Diagonal Pattern on the Dow also suggests lower prices.  But the thing that really caught my eye yesterday was the lack of institutional buy programs.  There weren’t any yesterday.  This tells me that the Big Boys are waiting to buy at lower prices.

The reason I believe we’ll bounce today is because of the A-D oscillator.  Yesterday this key indicator came in with an EXTREMELY oversold reading of -191.  Usually when this indicator approaches -200, the market bounces.  If it doesn’t, it would spell real trouble as the only time the indicator says near -200 or below is when the market is in a free fall crash.  I didn’t see crash like symptoms yesterday, so we should bounce for a day or so before the decline resumes.

The final reason I believe the decline is not finished is because of the Sector Ratio.  When I went to look at the Strong Sector List this morning, I didn’t see any Strong Sectors. I thought my algorithm was broken!!.  There were no sectors on the Strong List.  None.  So, I re-ran the algorithm.  Again nothing!  I went back and looked at the other algorithms I use, and they were working just fine.  But the Strong List was blank.  It was only when I looked at the Weak Sector List that I discovered the problem.  So, I counted the number of sectors on the Weak List.  They added up to 24!  In other words, all of the sectors withing the S&P 500 are WEAK!!! There are NO STRONG SECTORS!!!  Not even the defensive sectors, like the Utes and food, were on the Strong List.  Again, this is NOT what you want to see if you’re Bullish.   

Gold was flat yesterday.  I took advantage of a few minor intraday declines to establish a few positions in NUGT and GDX.  The last two days of sideways trading have formed the ‘Blade’ of a Hockey Stick Pattern that should act as the springboard for higher prices.  Gold is still the only Green signal on the cockpit, besides the Dollar which I don’t trade, so I continue to focus on gold and mining shares.  By doing this, I don’t have to worry about what the other markets are doing.  It’s a lot easier on my gut, and very profitable. 

Last night, in my Class About Nothing, I showed students how I use the market timing signals on the cockpit to trade.  Once a signal turns positive, I simply buy a Basic Position and hold the position until the signal turns negative.  Then, if the signal stays positive, I add to the position whenever the 2-period RSI becomes oversold (On Sale).  I sell these additional shares when the 2-period RSI becomes overbought (Fully Priced).  It’s a very simple strategy and it works!  You can use it to scalp trade the 5 or 15 minute bars, or position trade the 60s or Daily bars.  Whatever time works for you.

So today, with gold on a Buy Signal, I’ll continue to focus on trading gold and mining shares.   I’ll also be watching for a bounce in the Dow.  If the Dow approaches the 25,100 level, I look to establish a few short positions using inverse index ETFs.  Remember, both the Dow and NASDAQ are on Sell Signals.  So, I’ll be watching the 2-period RSI on the INVERSE ETFs for these indexes for overbought conditions.

BTW, I’m also watching for a change to the Crude Oil Signal.  If Crude turns positive, I’ll become very interested in energy stocks…but not now.

That’s what I’m doing,

h

Market Signals for

10-25-2018

One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE

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The Hockey Stick Pattern
The Creation of Waves and Trends
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