Professor’s Comments October 28, 2019

Posted by OMS  at October 29th, 2019

The markets rallied yesterday with technology stocks showing the largest gains. The Dow finished 133 points higher, closing at 27,091. The NASDAQ and SPX were up 83 and 17 points, respectively.  Volume on the NYSE was 107 percent of its 10-day moving average.  There were 154 new highs and 22 new lows.

Yesterday’s rally was the Big Move predicted by Friday’s small change in the A-D oscillator.  There was another small change signal in the A-D oscillator last night, so we should have another Big Move within the next 1-2 days.  Given that the Fed Meeting will begin its 2-day meeting today, the Big Move could occur after tomorrow’s announcement on interest rate policy.  It’s widely expected that the Fed will drop interest rates another quarter percent.

There were no changes to the market timing indicators after yesterday’s session.  The Dow, SPX, NASDAQ, and Russell 2K remain on Buy Signals.

The Dean’s List and the Tide are Positive.  

The market remains in a very fragile condition.  If the timing signals remain positive, the odds suggest the markets will push slightly higher.  However, the 27,307 level looms as stiff resistance for a move to the 27,500 – 27,700 level. As I mentioned last weekend, the weak breadth and volume numbers I’m seeing are quickly reducing those odds.

There is one other item worth mentioning that doesn’t bode well for higher prices and that’s the current Put/Call ratio. When the current rally started on 3 October, the P/C ratio was 1.23, its highest level since last December. High P/C ratios reflect investor pessimism, which usually results in a market rally.  However, yesterday’s P/C ratio of 0.83 reflects a good bit of investor optimism, which unfortunately is usually a place where significant declines can begin. I’m always very cautious about committing new money to equities when the P/C ratio is this low.

The two scenarios I have been discussing for the past few weeks remain on the Board.  But again, because of the weak breath and volume, it still appears the Dow will have a tough time breaking above the 12 September high of 27,307. If it does on strong breadth and volume, the odds will shift and support a move toward 27,500+.  Otherwise, I’m starting to lean in favor of the alternate scenario that suggests the top is already in.

In this alternate scenario, the past few days of choppy up down up trading could still be part of retracement wave 4 up of Wave 1 down that began from the high of 27,112.  If this is the case, the 3 October low of 25,743 remains as a potential target for wave 5 down of Wave 1 down.  If the market timing indicators turn negative this week, this alternate scenario will become my primary scenario.

The Sector Ratio stayed at 23-1 Positive after yesterday’s session.  Seeing the Ratio this strong is one of the reasons I still can’t get too negative on this market.  IF the alternate scenario is going to develop, the Sector Ratio MUST start to weaken. Right now, the Strongest Sectors are Service, Retail, Autos, Semiconductors, and Banks. The one weak sector is Household Products.

As long as the market timing indicators AND the Sector Ratio remain positive, the odds continue to favor a move toward the September or July highs of 27,307 or 27,399.  A change in the timing indicators would negate this Bullish Scenario and likely mean that Wave ‘D’ up has truncated.

Gold (GLD) fell 1.22 to 140.64 yesterday. With gold on a Buy Signal, the Model used yesterday’s pullback to buy a few shares of GDX and NUGT.  Gold appears to be breaking out of its Wave 4 triangle that has been forming since 4 September.  If this is the case, GLD should begin to move higher in the days ahead, moving back above its Upper Trend Line at the 141.5 level. IF Wave 5 up is starting, gold (the metal) could rally to the 1,600-1,650 level.

Bonds (TMF) fell on Monday causing the Model’s inverse shares of TBT to gain 0.45 cents to 26.30.  The Hockey Stick Pattern on TBT continues to suggest higher prices towards the 28+ level.

As discussed in the WSR, shares of UCO (crude oil ETF) pulled back yesterday after meeting resistance from the Upper Trend line of its four month long triangle.  I would expect the pullback to continue for another few days as the ETF consolidates before attempting a breakout of the triangle.   A move above the 18+ level would confirm the breakout, which has a potential target near the 27-28 level.  

The Model bought 1,000 shares of GDX and 300 shares of NUGT yesterday.  So now in addition to its gold shares, the Model is holding 1,500 shares of UCO, 600 shares of TBT and $51,223 in cash.

The Model Portfolio is being shown for educational purposed only.  The Buy/Sell actions in the Model Portfolio are made based on technical indicators that can and do change frequently and should NOT be considered as recommendations for trading an actual portfolio.  Any gain or loss in the Model Portfolio should not be used to predict future performance of the Model.

That’s what I’m doing,

h

Market Signals for

10-29-2019

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.