Professor’s Comments December 11, 2015

Posted by OMS  at December 11th, 2015

The Dow rallied early from oversold conditions and then gave back about half of its gains to close up 86 points at 17,575.  Volume was moderate, coming in at 106 percent of its 10-day average.  There were 16 new highs and 146 new lows.

Yesterday’s rally was the Big Move predicted by the small change in the A-D oscillator.  However because the late day decline did not produce any changes to the cockpit indicators, it raises the possibility of a change to the overall Five Wave to a Top (FWT) Scenario.  It’s not a Big change, but it could impact how the Dow chops its way toward the 18,350 level.  

Here’s the thing:  If yesterday’s rally was the start of final wave 3 of 5 up, it should have been impulsive.  Yesterday’s early 200 point pop should have held.  But the fact that it didn’t means that it was likely just part of another corrective wave within the Bullish Wedge Pattern. 

If you recall, yesterday I said that it appeared that all the waves within the Bullish Wedge Pattern looked to be complete.  I could count five waves.  But I fully admit they weren’t five perfect waves as the last two were very close together. They could be considered the a-b-c moves of one wave.

So in view of what happened yesterday, I now have to consider that yesterday’s rally was the start of wave ‘d’ up.  If this is happening, then the Dow will likely rally to the 17,800 level to complete wave ‘d’ before pulling back to about 17,700 to complete wave ‘e’ of the Wedge.  Then once all five waves are complete, the Dow should start an impulsive rally to 18,350, possibly higher.  The reason I say ‘possibly higher’ is because the longer prices stay within the Bullish Wedge Pattern, the more energy the pattern will develop to push prices higher.  The Wedge will act as a coiled spring.

On the other hand, IF the Dow starts to move impulsively higher today, it means that the final wave 5 up has started, and the Dow should move quickly toward 18,100.  But after yesterday’s false start, I have to give this scenario a low probability.

As long as the Dow stays above 17,400, I have to go with the Bullish Wedge/FWT Scenario.

Anyhow, I’m sticking with the plan I outlined yesterday with respect to my ‘trial’ positions in the index ETFs.  Even now with the Dow at 17,575, I still feel that positions established at current levels will be winners in a few weeks.

I also had some fun yesterday trading JBLU on the shorter term bars.  A few weeks back I talked about how I was using the Money Flow, Trend, and Stochastic indicators to produce scalp trading profits.  If you are still having trouble with these indicators, drop me a quick email.  If enough students are interested, maybe we’ll schedule an Update Class or a webinar to discuss them.

Right now, with all the volatility taking place, scalp trading is the best way to take advantage of the moves.  And when the A-D oscillator tells us in advance that a Big Move is coming, it’s really a lot of fun to be a trader. 

Remember, the market is NOT in a trend mode now.  The 35-period CCI on the Dow is only at -61. So whenever there is NO Trend, scalping is always the preferred method.  The most likely pattern on the Board is a Bearish Wedge, which is a consolidation pattern.  And this pattern is within the Five Waves to a Top Scenario.  So until the consolidation completes, I will continue to scalp trade, using small ‘trial’ positions and taking profits quickly.

I’m not saying that taking a position trade like the one I mentioned yesterday is a bad thing.  It had an 8:1 reward-risk ratio.  And even after yesterday’s pop, the ratio is still close to 7.75:1.  And with every day that prices stay within the Wedge, the potential for a move above 18,350 will likely increase.  So I still like the odds.  Just remember that with any Position Trade, you are probably going to experience a lot of volatility along the way.

Scalp trading.

That’s what I’m doing,

h

Market Signals for

12-11-2015

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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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.