Professor’s Comments August 26, 2014
Posted by OMS at August 26th, 2014
The Dow rallied 76 points yesterday, closing at 17,077. The rally was likely the Big Move predicted by Thursday’s small change in the A-D oscillator. Volume was low, coming in at 86 percent of its 10 day average. There were 175 new highs and 22 new lows.
In my WSR, I mentioned that I didn’t think the corrective pattern of wave ‘b’ up was finished. I said don’t be surprised IF the SPX makes a run at 2000 early in the week before starting wave ‘c’ down. And as we saw yesterday, the SPX got as high as 2001.98, before closing at 1998. So what now?
There was another ‘relatively’ small change in the A-D oscillator again last night, this time for 16 points, so we need to be on the lookout for another Big Move within the next 1-2 days.
One thing I noticed yesterday was that even though the Dow had a nice gain, the ratio of advancing issues to decliners was only 1921 to 1212. That’s a lot of declining issues on a day when the Dow was up over 120 points intraday. Also, the number of new lows was actually higher yesterday than on Friday, when the Dow was down 38 points. So even though yesterday’s rally appeared strong on the surface, it wasn’t.
The current pattern still appears to be corrective, and once wave ’b’ up completes, stocks should start to decline as wave ‘c’ down unfolds. I’m still looking for the Dow to decline to the 16,300 level, possibly lower, before wave ‘c’ down completes. This is where I will be looking to buy stocks for what I believe will be the final rally wave of the Major Ending Diagonal Pattern. I will also be looking to short the market during wave ‘c’ down, but I’m not ready yet.
The next week should be influenced by the Bullish bias that usually occurs during end-of month and Holiday weekend trading. But with the Dow only about 80 points from its 17 July top of 17,152, I have a hard time even thinking about trading the long side now.
I just don’t see anything that I believe has relatively good odds. I would love to trade energy, but DIG is not on the Dean’s List, and the PT indicators on HAL and SLB are still Red. And it’s still too early to do any serious shorting with a Green Breadth indicator on the cockpit and DIA, SPY, and QQQ still on the Dean’s List. So I’m just gonna wait.
One thing that caught my attention last night was the relatively low strength of the U.S. ETFs on the Dean’s List. If you look closely, most of the top issues are non-domestic ETFs. And right now, there are only 3 issues with a RS ranking of 2, one of which is a Bond Fund. All the rest are ranked 1 or zero. In other words, the Dean is telling us that this is not a very strong List. So with a weak list, and the market being very close to a top, I’m being very cautious.
With this being the start of Hurricane season in Florida, I did check a few of the agricultural ETFs last night, including DBA and CORN. Both of these ETFs remain in significant down tends, but things could be ready to change. CORN has been in a steady decline since the beginning of May, pressured by the available supply of crude oil. The ETF has formed a classic TLB pattern and the price has steadied for the past two months causing the Bollinger Bands to narrow. The reason I’m starting to watch CORN now is because the ETF has a history of making large, steady moves after the PT indicators turn from a pattern with tight Bands.
The Pattern is similar on DBA, the Agriculture ETF, however the Bands are nowhere near as tight as the ones on CORN. IF either ETF starts to appear on the Dean’s List with positive PT indicators, I’m a buyer. Not now.
All I’m doing now is watching and waiting.
That’s what I’m doing,
h
Market Signals for 08-26-2014 |
|
---|---|
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
BREADTH | POS |
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