Professor’s Comments August 26, 2015
Posted by OMS at August 26th, 2015
The Dow rallied over 300 points just after yesterday’s open, but couldn’t hold the gains. At the end of the day, it was down 205 points to close at 15,666. Volume was heavy again, coming in at 129 percent of its 10-day average. There were only 2 new highs and 252 new lows.
Yesterdays early rise and late decline appeared to be part of a large triangle that is developing for wave 4 of Major Wave 1 down. If this is the case, then the Dow should have at least one more rally leg in it before wave 5 down starts to take over. The rally should move the Dow back above the 16,000 level, possibly near or slightly above yesterday’s intraday high of 16,313.
Once this wave 4 rally completes, probably later this week, wave 5 down should drop the Dow under the 15,000 level. My actual target for wave 5 down is now near the 14,600 level, but a lot will depend on where wave 4 up completes.
One of the reasons I believe the Dow will rally from current levels is because of the A-D oscillator. It’s still ridiculously oversold. Last night’s reading was a –297, and with a reading like that, the market usually rallies.
Today I will be watching the Money Flow and Trend Indicators on the 15 min bars looking for opportunities to re-establish my inverse index ETFs positions.
With a negative Tide, I always look to trade inverse index ETFs from the Dean’s List. It’s my Basic Strategy for trading ETFs. It’s what I do.
Basically, I’m thinking that IF the Dow moves back above 16,000, I want to start shorting the market to take advantage of another potential 1,400 point decline. If the Dow continues to move higher, I will continue to add to those inverse positions.
Here’s why: Monday’s 1,000 straight down decline was impulsive. I can’t ignore this fact. Anytime I see a straight down decline, I have to identify it as a wave 3. So all of the trading action since then…all of the up-down-up–down movement since Monday’s bottom must be considered as part of retracement wave 4. From Class, we know that wave 4’s usually form triangles. And triangles always have 5 waves. So far, I can only count 4 waves, so the final rally leg is missing. This together with an oversold A-D oscillator is why I believe the Dow will rally during the next few days.
However, once wave 4 complete, the odds start to favor another large decline. This is because the wave 4 triangle will form the ‘Blade’ on Monday’s 1,000 point ‘Stick’. And a completed Hockey Stick Pattern is ALWAYS a continuation pattern.
Also, while you’re watching for the wave 4 triangle develop, remember too that triangles are consolidation patterns. They are NOT reversal patterns that support major moves higher. The choppy trading easily identifies them. Anytime you see large up-down-up moves that at first you can’t identify, you MUST always first think triangle. And the rule for a consolidation triangle is that stocks leave the triangle in the direction they enter it, so in this case, the next move after the triangle completes should be down.
This is why I will be looking to short any rally during the next few days. I’m just playing the odds.
That’s what I’m doing,
h
Market Signals for 08-26-2015 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
SUM IND | NEG |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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Category: Professor's Comments