Professor’s Comments 3/25/2020

Posted by OMS  at March 25th, 2020

Yesterday’s rally was likely part of retracement Wave ‘a’ of 4 or B up. This wave has the potential to carry the Dow back to the 21,300 to 22,100 level before it completes. After that, the Dow should decline to about the 21,000+/- level in Wave ‘b’ down before Wave ‘c’ of 4 or B up takes the Dow to the 23,500 -24,500 level to complete the a-b-c pattern. Students should understand that a retracement sequence is NOT the beginning of a new Bull Market. It’s just a normal corrective wave rally in an ongoing Bear.

This is the reason the Model sold its shares of BP yesterday taking a 3 point profit. Rally waves like the one we had yesterday can and do truncate. They do not have to reach their projected targets. So, when you’re trading a retracement wave and have a profit, you MUST take it when you can. There is no such thing as a buy and hold strategy in a retracement wave. Scalp trades only!

Gold had a nice rally yesterday. It too appears to be in a counter trend rally that should top near current levels (1,625). If gold begins to show signs of pulling back in the next day or so, it could be the start of Wave 3 down, a wave that should take gold back below the 1,450 level.

BTW, even though the DMI on GLD turned positive yesterday, most of the volume indicators did not and are showing signs of negative divergence. This is why I believe yesterday’s gap open was not the start of a new rally wave for the metals. Rather, it was likely an exhaustion gap.

Bonds appear to be in a similar pattern as gold. Yesterday’s pullback could have been the completion of Wave ‘b’ up in an a-b-c sequence that should lead to lower prices in bonds in the next few weeks. If the indicators turn negative, the Model will look to buy a few shares of TBT, the inverse ETF or Bonds.

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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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