Professor’s Comments October 5, 2018

Posted by OMS  at October 5th, 2018

The BLS will be releasing the results of the September Jobs Report at 8:30 this morning.  The report can move markets, so trade cautiously, especially after yesterday’s rout.

The first thing I want to say about yesterday’s market decline was that it was IMPULSIVE.  That’s the key takeaway.  Forget about what CNBC and Fox Business were saying about interest rates. That’s a distraction.  No, interest rates are NOT the takeaway from yesterday’s decline.  Heck, my Bond timing indicator has been negative since 5 September. If the decline was about rising interest rates, you would think the market decline would have started over a month ago.  BTW, yesterday’s decline in TMF, the ETF for the 20+ year Bonds, was down less than half it was from the previous day, so blaming the decline on rising interest rates was ridiculous.

No, the real reason for yesterday’s decline was the pattern and the fact that there was a small change signal from the A-D oscillator on the Board.  So once the markets started to break pattern trendlines, the small change signal told us to expect a Big Move.  It was predicted.  The decline from 185.30 to below 182 produced a nice short trade :>)

So let’s talk about yesterday’s IMPULSIVE move on the NASDAQ-100 (QQQ) for a moment.  The reason I want to do this is because whenever you see an IMPULSIVE move like the one we saw yesterday, you MUST pay attention.  That’s because impulsive moves usually only occur in Wave 3s, either up or down.  Last week I posted a chart of the QQQ to show students that the NASDAQ-100 was forming a complex a-b-c pattern for Wave 2 up.  I posted the chart to warn students that once this a-b-c retracement pattern completed, they should expect to see an IMPULSIVE Wave 3 down.  So once the trendline at 185.30 was broken, the decline to 182 was underway.  The Q’s actually got as low as 181.06 before bouncing.  Large cap technology stocks got hammered.  BTW, have you seen the technology sector on the Strong Sector List lately?  No.  It hasn’t been there for weeks.

OK, so where are we after yesterday’s decline.  Well, first of all, the fact that yesterday’s decline on the Q’s was IMPULSIVE and occurred after sub-waves 1 and 2 were complete, is a good indication that technology stocks are now in Wave 1 down of a new Bear Market. The commentators on CNBC haven’t realized this yet, and probably won’t for months as the next set of waves continues to develop.  Remember, if yesterday’s IMPULSIVE  decline was sub-wave 3 down within Wave 1 down, it’s likely that yesterday’s late bounce from 181.06 was the start of sub-wave 4 up.  From Class, we know that wave 4s are usually complex affairs, so we could see some volatile back and forth trading as some type of triangle develops.  This analysis assumes that sub-wave 3 down completed yesterday. IF wave 3 down is NOT complete, yesterday’s bounce could also a small wave 2 correction within sub-wave 3 down, which would mean that the sub-wave 3 decline has more to go before it completes. If this is the case, the next support level is likely the 178-178 level.

But here’s the thing.  Even though the markets had a big decline yesterday, the wave count suggests that they are NOT in the crash mode yet.  They’re still only beginning to develop the initial sub-waves within Wave 1 down.  Also, once Wave 1 down completes, the markets should rally to retrace a good portion of the Wave 1 decline.  This should take a few weeks to develop.  Then once the Wave 2 retracement is complete, the stage will be set for the next major decline or Wave 3 down.  By the time all five these waves are complete, the Ending Diagonal Pattern on the Dow suggests it will be trading at the 24,000 level or below.   Ending Diagonals are usually very reliable patterns.

Yesterday’s decline caused the VTI-volume indicator on the Dow to turn neutral, joining the Q’s on a neutral signal. Again, this tells me that the decline I continue to see coming because of decrease in breadth is only beginning.  BTW, yesterdays’ new lows swamped the new highs by 426 to 36!  For the past few weeks, I have been talking about how the increase in new lows was warning of an approaching top.  Seeing yesterday’s 426 new lows was extraordinary.  Heck, a high number of new lows is usually around 70-80, so yesterday’s 425 was noteworthy.  Seeing this many new lows is a sign that things are changing in the market. 

BTW, the DMI on the NASDAQ and SPX also turned negative yesterday.  Hmmm?

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

There was a major change to the Sector Ratio after yesterday’s session.  The Ratio fell to a negative 10-14.  So now, there are more negative sectors than positive.  This is the first time this has happened in months.  The fact that the Sector Ratio is now negative should be taken as a major warning.

The Strong Sector List continues to be dominated by ‘defensive’ sectors like  PharmaBio, FoodDrugs, Telecoms, Household Products and Energy. Now that the Sector Ratio has turned negative, students should be extremely cautious about holding stocks.  A negative Ratio will put pressure on all stocks, even those in the strongest sectors.

The Weak Sector List continues to be led by Service, Retail, Consumer Products, Semiconductors, Real Estate, Leisure, and Banks.

Gold (GLD) rose slightly yesterday increasing 0.06 to 113.48. My VTI-volume indicator for gold remains on a neutral signal, however the DMI on GLD has turned positive. The VTI-volume indicator for the gold miners remains positive.  I’m still watching gold closely for signs that Wave 3 up is starting.

I bought a few call options on GLD yesterday.  I bought the 18 January 2019 contract with a 115 strike, paying about 2.15 per contract.  I think the contract is a buy up to about 2.34.  I also bought a few more shares of NUGT when I saw the ETF drop below 13.15.  I continue to build my position in gold and mining shares.  The DMI on NUGT is also positive with an inverse Head & Shoulders Patting working for it.  IF NUGT can break above the H&S neckline at 14.41, it would be a sign that Wave 3 up in gold has started.  If you get a chance today, take a quick look at the pattern. 

Waiting for the Jobs Report.

That’s what I’m doing,

h

Market Signals for

10-05-2018

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.