Professor’s Comments October 26, 2018

Posted by OMS  at October 26th, 2018

The markets rallied sharply yesterday, retracing a good portion of Wednesday’s decline.   The Dow finished up 401 points after being up as much as 521 points intraday.  The NASDAQ and SPX were up 210 and 49 points, respectively.  Volume on the NYSE was high, coming in at 121 percent of its 10-day moving average.  There were 11 new highs against 305 new lows. 

In yesterday’s Comments I mentioned that the Dow would likely rally to the 25,100+ level to complete a small Wave 2 retracement.  The large cap index actually got as high as 25,104.  Just after this happened, I received an email asking how I was able to determine the target level with such precision.  Hmmm?  It was actually pretty simple.

If you look closely at a 5 min chart of the Dow of Wednesday’s decline, you will see that there were two places where the Dow rallied during the decline.  One at 25,171 which occurred at 12:15 pm and the other at 25,073 at 14:30.  The 25,171 level was the interim high between Wednesday’s first two lows.  It was a natural place for yesterday’s retracement to end. So, all I did to predict the 25,100+ level I used for a target was split the difference between 25,073 and 25,171.  This is one of the reasons I teach the use of  Three Lows to a Bottom in my Basic Course.  It allows you to predict retracement rallies like the one we had yesterday.  I used the 25,100 level to put on a few shorts.

One of the stocks I was watching yesterday was Amazon (AMZN). During the day the stock was rising as investors looked to snap up a potential bargain.  Hmmm?  It probably seemed like a good idea at the time as AMZN was down 104 points on Wednesday.  Many of the commentators on Fox Business news were talking the stock up as the market rallied. But just like what happened with the Dow, Amazon was just rallying into a similar resistance level at the 1800 level, which was the interim high between its first two lows on an hourly chart.  I wonder how many people buying Amazon yesterday realized that?  Hmmm?  No, they weren’t getting a bargain; they were paying Full Price!  So, when Amazon released poor earnings after the bell, the stock got clobbered in the after hours market. 

So once again, we see another example of what I continually say.  “No stock, no matter how good goes to heaven.  It goes to a target.”  And for Amazon, yesterday’s target was the 1800 level.  The stock got as high as 1,794.81.  Targets matter!  And when the stock reaches its target, it’s Fully Priced.  It’s NOT ‘On Sale’.  No matter what the commentators on Fox News or CNBC say.

Anyhow, yesterday’s rally did NOT change any of the market timing signals on the cockpit for equities. They’re all still on Sell Signals. So now that the Wave 2 retracement appears complete, the markets should resume their decline today. The wave count suggests the decline will be an impulsive Wave 3, so don’t be surprised if the decline starts to gather momentum.  Now that the 15 August low of 24,965 has been broken, there isn’t a lot of support for the Dow until it approaches the 24,000 level.  In other words, be careful!

The Sector Ratio is still overwhelmingly negative.  There are NO strong sectors, so the Ratio remains at 0-24 negative.

Gold was relatively flat yesterday as GLD dropped 0.26 cents.  But the miners got hit hard.  With the Fed still talking about rising interest rates in December, the miners will likely remain under pressure.  Yesterday, the miners were being sold hard as investors moved money into technology stocks.  This should change once they realize yesterday’s rally was only a retracement pop and start to look for a safe haven again.  However, the real rally in gold will occur once the Fed recognizes that its interest rate policy is killing the housing market and equities and starts to talk less about raising rates.  If they do that, gold and mining socks will explode higher because the market will start to become concerned about inflation.

I’m still on a Buy Signal for gold, but the miners have moved to a Neutral Signal after yesterday’s session.  

Like I said above, I’m short the market now using several inverse index ETFs.  I will be looking for opportunities to add to these positions whenever the 2-period RSI on the indexes becomes overbought. 

That’s what I’m doing,

h

Market Signals for

10-26-2018

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

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.