Professor’s Comments September 12, 2018

Posted by OMS  at September 12th, 2018

The markets closed higher yesterday after an early decline. The Dow was up 114 points at 25,971.  The NASDAQ and SPX were up 48 and 11 points, respectively. Volume on the NYSE was moderate, coming in at 100 percent of its 10-day moving average.  There were 95 new highs and 121 new lows.  Students should note that even though the indexes were up yesterday, the number of new lows continues to exceed the number of stocks making new highs.  This bearish divergence is a sign the market is not healthy.

Yesterday’s bounce was a direct result of an oversold 2-period RSI with NO Trend in place.  The 2-period RSI on the Dow rose from the previous day’s reading of 8.2 to 69.7.  In other words, the Dow is still not overbought, and more upside is likely.  Yesterday I mentioned that the Dow has moved out of the Trend Mode, and because of this will likely oscillate between oversold and overbought conditions. So, the next time you see the 2-period RSI on the Dow overbought or oversold with No Trend in place, you’ll know what to expect.

Yesterday’s late rally produced several changes in the Market Timing Signals on the cockpit.  The VTI-volume indicator on the Dow turned Positive again after being Neutral for a day. This was not unexpected given that the Dow had just recently come out of the Trend Mode and was temporarily oversold.  Students should also remember that a Neutral Signal is just that…Neutral.  It is NOT a Sell Signal.  By turning Neutral, the signal is just issuing a warning that the original signal (in this case a Buy) is getting weak.

The NASDAQ remains on a Sell Signal.  The VTI-volume indicator on Gold turned back to Neutral. The Dollar remains positive with Bonds and Crude Oil still on Sell Signals.

The U.S equity indexes continue to trace out the final legs of their Ending Diagonal Patterns.  With the Dow back on a positive signal, the pattern allows for one more final push higher, possibly to the 26,600 level.  However, with the bearish divergence in breadth I’m seeing, the odds for the Dow reaching the 26, 600+ level are declining.  The NASDAQ, SPX, and Russell 2K are in slightly different patterns and may have already topped.  Most of the European country ETFs were down again yesterday and remain on long-term Sell Signals.  Australia and recently Canada are now also on long-term Sell Signals.  So as the economies of these countries continues to slow, there will be less demand for imported U.S. goods and services.  This will eventually impact the earnings of most U.S. stocks, putting pressure on our domestic markets.  

The Sector Ratio slipped to 14-8 positive after yesterday’s session.  So, while the Ratio is still positive, it’s telling us that several Sectors are starting to weaken.  Yesterday the Semiconductors, Service, and Leisure Sectors moved back to the Weak List.  Looking at the Leisure Sector, its mostly the casino stocks that are getting hammered.  The Restaurants and Lodging Stocks are still showing strength with mostly positive VTI-volume indicators.

It’s troubling for me to see the Semiconductors on the Weak List as the sector is usually one of the leaders in any market rally.  However, the Semis moved to a Daily Sell Signal recently (7 September) and are getting close to generating a Weekly Sell Signal.  Intel (INTC) generated its most recent Sell Signal on 14 August and remains in the Down Trend Mode.  Because INTC is a widely held Dow and NASDAQ stock, I would be very concerned if it generates a Weekly Sell Signal.

Crude Oil had a nice pop yesterday, but it was not enough to change the VTI-volume signal.  It’s still negative.  The pop in crude caused a rise in HollyFrontier (HFC) and Marathon (MRO), but not enough to generate a Buy Signal.  Again, the reason I’m watching Holly, Marathon and Valero (VLO) is because of their long-term Hockey Stick Pattern and the difference in price between heavy Brent and light West Texas Crude.  If the indicators on these refiners turn positive, the patterns and favorable fundamentals suggest they could move substantially higher.

Students might ask why I’m not all that concerned about the refiners with Energy still leading the Weak Sector List.  Hmmm?  Well, its because the refiners do best when the price of crude is stable or falling.  With stable prices, the refiners are able to replace the unrefined crude with similarly priced product, selling off the gasoline, benzine, wax, naphtha, etc. at higher profits.  The other groups in the oil industry, like the explorers, drillers, and producers do best when crude prices are increasing.  So, with the price of crude oil mostly decreasing for the past three months, most stocks in the Energy Sector have fallen causing weakness in the Sector.  But like I said, the refiners are special, and that’s why I continue to watch them.

BTW, also topping the Weak Sector List are Media, Material, Computers, and Healthcare. 

That’s what I’m doing,

h

Market Signals for

09-12-2018

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

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The Hockey Stick Pattern
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