Professor’s Comments April 3, 2018
Posted by OMS at April 3rd, 2018
The markets fell hard early, then bounced into the close. The Dow finished the day down 459 points at 23,644. It got as low as 23,345, well below its 200-day moving average located at the 23,555 level. The NASDAQ and SPX were down 193 and 59 points, respectively. Volume on the NYSE was moderate, coming in at 101 percent of its 10-day average. There were 16 new highs and 133 new lows.
In last week’s Comments, I said the Dow’s next move would likely test its 200-day moving average. It did. If you were trading the short side yesterday, you made another bundle. It was another big Cigar Day.
So now that the 200 has been tested, what now?
The market remains in a solid down trend. Yesterday’s decline on the Dow appeared to be all or part of sub-wave 3 down within Wave 1 down of Major Wave 3 down. Once all 5 waves of Major Wave 3 down are complete, the Dow should be trading close to the 20,500 level.
At this point, its not clear if sub-wave 3 down completed yesterday or not. Yesterday’s late rally could have been the start of sub-wave 4 within Wave 1 down. If it is, the rally will likely continue for the next few days forming a small triangle on the short-term bars, before falling again as sub-wave 5 down of Wave 1 down unfolds.
At this point, with my VTI-volume indicator on a solid Sell Signal, I still believe that any rallies should be faded. The easier path is down, especially now that 23,500 has been broken. By breaking below 23,500, the Dow has confirmed that a new Bear Market is underway.
The problem for traders now is because yesterday’s decline fell below 23,500, the ‘Rope Jump’ suggests that Wave 1 down could be nearing completion. Remember from Class that the purpose of a ‘Rope Jump’ was to signal that Major change in direction is taking place. But before the market can start to decline in earnest, Wave 1 down will have to complete, and Wave 2 up will have to test and re-test the 200, pulling the 50 below the 200 to put the market into a Major down trend. This will take time. And while the market is tracing out the sub-waves of the a-b-c pattern for Wave 2 up, there will be lots of volatility. So be prepared.
Even though my VTI-volume indicator has entered the Trend Mode, the pattern suggests that once sub-waves 4 and 5 down of Wave 1 down complete, the Dow will start to enter another period of choppy trading. So scalping conditions remain in place. I will not start holding Major short positions overnight until Major Wave 3 down begins. It’s much safer (and profitable) to trade the short-term bars during the day and then exit the trade before the close. That way you don’t have to worry about the market turning against your positions overnight. And right now, with sub-waves 4 and 5 directly ahead, and Wave 2 on the horizon, we could see a lot of choppy trading conditions during the next month or so.
Yesterday’s Sector Ratio fell to 24-0 negative. There are NO strong sectors. Zero! The Weak Sectors were led by the same guys: Real Estate, Autos, Transportation, Food Drug, and Energy. They all got hammered yesterday. Aren’t you glad that you have been paying attention and avoiding stocks from the Weak Sector list? Hmmm? 24-zip!
My shorts in IBRK and MS dropped 2.45 and 1.24 points, respectively. I closed both positions with nice profits near their lows of the day. BTW, students should note the similarities between IBKR and MS, particularly how both stocks are trapped between their 50 and 200-day moving averages. In other words, the down trend has NOT started in them yet. So, IF the market rallies during the next few days, I’ll once again be watching the 2-period RSI on both stocks for shorting opportunities. Why? Both stocks were identified as shorts by my algorithms and both need to move below their 200 before Wave 1 down completes. So, assuming the Bear Market has started, these transition stocks will need a ‘Rope Jump’ before their downtrend can begin and that’s still several downside points away. In this case, the 200 makes a good trading target.
Also, using the above example, look at your stocks in this light. Are they already in down trends (50<200) or are they still in the process of pulling the 50 below the 200? Remember, the Dow has now signaled that the Bear Market has started, but not all stocks are in down tends. Some (many) of them are still in the transition phase. Some of these will make the best shorts, because they still have a lot of ‘juice’ to be squeezed, especially for scalp traders.
Gold and most mining stocks rose yesterday. GLD gained 1.47 to 127.26. My combination VTI-volume indicator on GLD remains on a Buy Signal.
Looking for opportunities to trade the short-side. That’s what I’m doing,
h
Market Signals for
04-03-2018
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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.
Category: Professor's Comments