Professor’s Comments October 30, 2018

Posted by OMS  at October 30th, 2018

The markets fell sharply again yesterday. The Dow finished down 245 points after being down as much as 556 points intraday.  The NASDAQ and SPX were down 117 and 17 points, respectively.  Volume on the NYSE was heavy, coming in at 115 percent of its 10-day moving average.  There were 18 new highs against 4105 new lows. 

Yesterday, the Dow came within 122 points of its target low of 24,000 for Wave 3 down.  The SPX was only 3 points from its Wave 3 target low of 2,600.  We won’t know for sure that a short-term bottom has been established until the market timing indicators on the cockpit turn Green, but the targets suggest we’re getting close.

Last week I mentioned that if the Dow broke below the 24,950 level, it would start to gain downside momentum as impulse Wave 3 down unfolds.  I also said that there wasn’t a lot of support for the Dow until it reached the 24,000 level.  Wave 3s are characterized by large impulsive moves, so seeing the Dow decline by 126, 608, and 296 points, which by any measure is impulsive.  In other words, this helps us identify where we are in the overall pattern.

OK, so IF yesterday’s decline was in fact part of Wave 3 down it sets-up two possible scenarios.  The Bearish Scenario first says that Wave 3 down is NOT complete, meaning the Dow continues to decline to the 23,500+/- level before Wave 3 down completes.  The Bullish Scenario suggests the Dow will bottom near 24,000 (yesterday’s low of 24,122 was close enough under this Scenario) before rallying back to the 25,000 level.  Once it approaches 25,000, there should be a small pullback to about 24,750, after which the Dow should continue to rally to the 25,800+ level or so.

If this happens, the wave count would change slightly, meaning that Wave 1 down, NOT Wave 3 down, completed near the 24,000 level, and the rally back toward 25,800 will be part of Wave 2 up.  Under this scenario, the markets would likely rally into 6 November, and then start a Wave 3 down crash after the elections.

BTW, one of the positive things I noticed late yesterday was the institutional buying that came into the market as the SPX approached the 2,600 level.  The Big Boys have been noticeably absent on the Buy side since I saw few buy spikes early last week.  If they’re getting ready to jump back in, pay attention to what happens on any re-test of the 2,600 level.  If during the day, the SPX drops slightly below 2,600 and then closes back above that level, it would be a very positive sign for the Bullish Scenario.

At this point, both Scenarios are possible.  The Tide, Dean’s List, and my VTI-volume indicators for the equity markets are not showing any hint of changing from their negative bias. So, until I see a few positive signs from these indicators, I MUST believe the market will re-test yesterday’s lows, as a minimum. 

One reason I fell this way is because of Amazon (AMZN).  The darling of the tech industry is CRASHING.  Yesterday the stock was down 27 percent from its 1 September high of 2,050.  It’s now well below moving average support at 1,661 AND is in the downtrend mode (CCI of -206).  By trading below its 200-day moving average, it now brings multiple downside targets of 1,355, 1,265, and 965 into play.  So, IF Amazon continues to decline, it will likely take the entire tech sector with it.  The 2-period RSI on AMZN is EXTREMELY oversold at 13.9, so it needs to bounce now!  If it doesn’t  and the 35-period CCI remains in the Trend Mode, it could spell real trouble for the tech sector.  

The Sector Ratio remains overwhelmingly negative.  However, the Media Sector moved to the Strong List, making the Sector Ratio 1-23 negative.   That’s still way too negative for me to think about taking positions to the long side.

Gold was relatively flat yesterday.  GLD fell 0.46 cents to 116.31.  I’m still on a Buy Signal for gold, with the miners still on a Neutral Signal.  

That’s what I’m doing,

h

Market Signals for

10-30-2018

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