Professor’s Comments December 18, 2014
Posted by OMS at December 18th, 2014
The four Bullish factors I talked about yesterday combined for a 280 point rally in the Dow. The EXTREMELY oversold A-D oscillator, the Small Change in the A-D oscillator, and the Bullish seasonality combined for the first 150 points. Then the Fed’s decision to keep interest rates low “for the foreseeable future” were responsible for the rest. The rally was fueled by a ton of short covering. It was likely the start of wave 2 up.
Volume on the NYSE was heavy, coming in at 121 percent of its 10 day average. There were 63 new highs and 110 new lows.
One of the things I found interesting about yesterday’s rally was that everything about it was corrective. It started with a 150 point pop out of the gate for wave ‘a’ up. Then a flat for wave ‘b’ and finally the Fed pop for wave ‘c’ up. Then once Chair Yellen started her post-announcement comments, the Dow fell 150 points, only to regain them into the close. The whole day consisted of a series of a-b-c moves.
Given the Bullish seasonality, it’s highly likely that this corrective rally will continue into year’s end. The SPX currently has the clearest pattern of the major indexes, so I’ll use it to project a few targets for how the retracement rally should unfold.
The first leg of the rally that started yesterday, wave ‘A’ up, should complete above the 2026 level. Then wave ‘B’ down should take the index back below 2000, likely to 1995 which is the level the SPX was trading at just before the Fed announcement. This will be an important level to watch later, as it will help us confirm the start of wave 3 down. Then once wave ‘B’ down completes, final wave ‘C’ up should take the SPX back above 2026, probably closer to 2040. I do not plan to short this market until this three-wave sequence is complete.
BTW, the targets I projected above, 2026 and 2040, are basically standard 50 and 62 percent retracement levels. The SPX does not have to hit these levels exactly. It probably won’t. Just remember that corrective rallies in Bear markets can be EXTREMLY volatile because of all the short covering that is going on. This increases the volatility which in turn distorts ‘normal’ target projections. I’m not as much concerned about the exact levels as I am about the overall shape of the retracement. It MUST be corrective! In other words, it MUST continue to develop as an A-B-C pattern. As long as this happens, it will increase the odds (and my confidence) that wave 3 down will likely start after the Holidays.
Most oils stocks had a nice day yesterday. Both HAL and SLB turned Green early on the 5s. If these energy stocks were your ‘Fed Day’ picks, you had a nice profits before the CCI signaled to head for the sidelines and wait for the announcement. The trade was exactly as described in the Fed Day webinar I did for AIQ Systems.
That’s what I’m doing,
h
Market Signals for 12-18-2014 |
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---|---|
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
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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Category: Professor's Comments