Professor’s Comments October 3, 2018

Posted by OMS  at October 3rd, 2018

The markets were mixed yesterday.  The Dow rose to an all-time high of 26,774, then pulled back to finish up 123 points. The NASDAQ and SPX were down 38 and one point, respectively.  Volume on the NYSE was moderate, coming in at 101 percent of its 10-day moving average.  There were 43 new highs and 148 new lows.  The bearish divergence in breadth continues. 

Yesterday, the declining issues on the NYSE outnumbered advancers by 1801 to 1178.  Another rout on a day when the Dow set a record high and finished up 123 points.  Hmmm?  How can this happen?

The NASDAQ Composite consists of over 3,300 companies. It is a broad based index that conducts about 1.8 billion trades per day.  The NASDAQ-100 or QQQ is an index of the 100 largest domestic and international non-financial companies on the NASDAQ.  The 30 companies in the Dow cover all the major sectors of the U.S. stock market except for transportation and utilities.  Most are household names.

The Dow and NASDAQ-100 share 5 stocks.  AAPL, CSCO, MSFT, INTC, and WBA.  So, for the sake of this discussion, let’s say that these five stocks tend to neutralize each other on both indexes.  To get a feeling for what happened yesterday, you need to understand that the combined action of 25 stocks on the Dow moved the index to a new record high closing 123 point higher, while 95 stocks on the NASDAQ-100 caused the index to close 38 points lower.   That’s a 3.8 to 1 ratio of decliners vs. advancers for NASDAQ technology stocks.  It also gives you a feeling for how poorly technology and small caps are faring vs. the 3:2 ratio of decliners-advancers that we’re seeing on the overall NYSE.  Bottom Line: the breadth of this market has narrowed considerably.  Only a handful of issues are now participating as the market makes its final push to a top.  This narrowing of breadth usually means that a top of major significance is fast approaching.

Yesterday’s 148 new lows is also something worth mentioning, especially after the 156 new lows we saw on Monday.  I went back and looked at a few instances when back to back lows like this occurred in the last 5 years.  In 4 out of the 5 times, the SPX was down about 1.5 percent a week later.  That’s not a lot, but the reason I mention it is because on one of those instances, 29 January 2018, the SPX was down 7.1 percent a week later!  Bad things can happen when the market is making new lows like it is now.  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. BTW, the VTI-volume indicator on the Dow turned positive on 11 September when the Dow was trading at 25,971.  Now the Dow is at 26,774, up over 800 points since the VTI-volume indicator gave its Buy Signal.  It pay$ to watch the signals.

My market timing indicator for gold and the Dollar remains neutral, but negative for Bonds.  The indicator for Crude Oil remains positive.

The Sector Ratio remained at 13-11 after yesterday’s session.  The Strong Sector List continues to be dominated by ‘defensive’ sectors like Household Products, PharmaBio, FoodDrugs, Cap Goods, Energy, and Telecoms.  Students might want to look at the stocks that led the Dow-30 yesterday.  The majority were from sectors on the Strong Sector List.

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

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

Gold (GLD) had a nice day yesterday, rising 1.30 to 113.87.  Most of the miners also had a nice day.  My VTI-volume indicator for gold remains on a neutral signal, but it’s getting close to turning positive. The VTI-volume indicator for the gold miners remains positive.  Yesterday’s up move could have been the start of Wave 3 up.  We’ll see.

I’m still seeing positive divergence between the miners and the basic metal.  This is always a good sign as the miners tend to lead.

That’s what I’m doing,

h

Market Signals for

10-03-2018

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