Professor’s Comments October 31, 2018

Posted by OMS  at October 31st, 2018

The markets rose sharply yesterday in what appears to be to be the start of a corrective Wave 2 rally.  The Dow finished up 432 points, closing at 24,785.  The NASDAQ and SPX were up 111 and 41 points, respectively.  Volume on the NYSE was heavy, coming in at 122 percent of its 10-day moving average.  There were 28 new highs against 336 new lows. 

In yesterday’s Comments, I talked about how the Dow came within 122 points of its target low of 24,000 for Wave 3 down.  I also talked about this low could represent a short-term bottom under a Bullish Scenario could produce a rally that would re-trace a good portion of the Wave 1 decline.  The first of these retracement waves could take the Dow back to the 25,000+/- level.  After looking at yesterday’s trading action, it appears that yesterday’s rally was the start of Wave ‘a’ of the Wave 2 retracement.  Once this wave completes, there should be a small wave ‘b’ pullback, maybe to 24,750 or so, after which the Dow should continue to rally as Wave ‘c’ up unfolds.  This potential Wave 2 rally means trading should be positive into the 6 November elections.

I’m using 25,800+ as the target for Wave 2 up because this is the level (25,818) the Dow reached when it corrected on 16 October.  This high should act as EXTREME resistance to any counter trend rally.

At this point, there are no guarantees for this rally, or for any of the potential targets mentioned.  They’re just my best estimates for now.  Students should remember that yesterday’s rally appears to be part of a corrective Wave 2, and as we know, Wave 2’s can have a mind of their own. They can overshoot their targets, or truncate, so be careful if you decide to trade the individual legs.  Scalp trades only.   

There were no changes to any of my market timing indicators for equities after yesterday’s session. However, Bonds moved to a neutral signal.  Also, UUP, the ETF for the Dollar, which is on a Buy Signal, made a new yearly high yesterday, closing at 25.82.  The Dollar generated its Buy Signal on 3 October.

The Tide and the Dean’s List remain negative.

The Sector Ratio remains overwhelmingly negative.  However, the FoodDrug Sector joined the Media Sector on the Strong List, making the Sector Ratio 2-22 negative. This is still a very negative Ratio, which continues to give me pause about trading the long side.  Also, Media and FoodDrugs are defensive sectors.  It’s tough for me to get excited about any rally in defensive issues now. Seeing money pour into these sectors just reinforces my belief that once the elections are complete, the next leg down of the Bear Market will begin in earnest.

Gold pulled back slightly yesterday.  GLD fell 0.51 cents to 115.80.  My VTI -volume indicator is still on a Buy Signal for gold, but the volume portion of the indicator suggests that gold will remain under pressure as the overall market rallies.  With the election only 4 trading days away, I don’t see a lot of interest in gold or the miners.

That’s what I’m doing,

h

Market Signals for

10-31-2018

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