Professor’s Comments August 23, 2016

Posted by OMS  at August 23rd, 2016

The Dow fell 23 points. closing at 18,529.  Volume was low, coming in at 87 percent of its 10-day average.  There were 134 new highs and 11 new lows. 

Yesterday’ small low volume decline turned the DMI on the Dow negative.  It also turned the Dean’s List neutral, as the first inverse index ETF (DXD) appeared on the List.  However, I wouldn’t get too negative on the market yet because the Money Flow indicators have still not turned negative.  And without money leaving this market, it will be tough to start the downside momentum shift that I’m expecting.

There was also another small change in the A-D oscillator of 5.13 points, so we need to be on the lookout for a Big Move within the next 1-2 days.  That Big Move could be either up or down.  When we got a small change signal last week, I felt that the Big Move would be down, (it was down) because the indicators were set-up for a down move.  However, this time, mostly because of the sideways trading that has occurred for the past 11 days and an overbought 2-period RSI, the Big Move could be up.  Whenever the markets trades sideways on low volume, it’s usually some type of consolidation pattern to support a move higher.  And with the Money Flow indicators being positive, the odds tend to favor a re-test of last week’s high.

If you look at a chart of the Dow since 2 August, it appears that the final move toward a top has consisted of 2 waves, ‘a’ up and ‘b’ down.  So one more wave up, wave ‘c’ up to complete the pattern would make sense.  Also, so far the markets have not had a real impulsive wave down to start the next major wave down.  Last week’s small change signal produced a nice move to the downside, but the move was quickly erased by the end of the day.  When the next major move down starts, these intraday downside moves will not be retraced.

Anyhow, with the VTI showing No Trend and a 2-period RSI oversold (18.3), I’m still on the sidelines.  I really want to see those Money Flow indicators turn negative before I start trading the downside.  I’m probably going to have wait a few days before the conditions I’m looking for set-up. 

Same for gold.  GLD continues to trade within what appears to be a sideways triangle. Yesterday GLD fell 0.19 cents to 127.78.  The VTI is showing No Trend with an oversold 2-period RSI of 21.6.  In other words, GLD could see a small bounce from current levels.  I don’t expect much from GLD during the next few days as it continues to develop its triangle.  However once the equity markets complete their topping patterns and start heading lower, that’s when I would expect gold to shine.  Be patient.

BTW, with GLD in a long term Uptrend (50>200) and an oversold 2-period RSI, the conditions are present for a Rifle Trade.  Watch the 60s.

That’s what I’m doing,

h

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08-23-2016

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