Professor’s Comments February 22, 2017
Posted by OMS at February 22nd, 2017
The Dow rallied for another 119 points, closing at 20,743. Volume was moderate, coming in at 101 percent of its 10-day average. There were 280 new highs and only 10 new lows.
Yesterday’s rally was yet another Big Move in a powerful rally predicted by the VTI. Since the VTI re-entered the Trend Mode on 7 February, the Dow is up 653 points. However, there is one thing we know about rallies like the current one. They never end well.
I’m often asked how high rocket ship or ‘spike rallies’ can climb before they flame out. The answer is that they can continue for as long as the indicators remain positive. That’s the thing about rallies like this; there is really no way to predict where they will end. The rally will end when the indicators turn negative.
From a pattern perspective, the current rally appears to be impulsive Wave 3 of a five-wave sequence within an Ending Diagonal Pattern. So, IF I’m correct about this, there should be a small pullback, maybe 200+ points, for Wave 4 before final Wave 5 re-tests the current highs.
The current rally is a great example of how the indicators react once the market enters the Trend Mode. For example, when the Dow was in a Non-Trend Mode from mid-July to the end of October, the 2-period RSI was a wonderful indicator to identify overbought and oversold conditions for scalp trading. All a student had to do was buy when the 2-period RSI became oversold and sell when it became overbought. However, once the 2-period RSI entered the Trend Mode on 10 November, the 2-period RSI was practically useless. During the recent rally, the 2-period RSI became overbought on 9 February and has remained at EXTREME overbought levels ever since. The 2-period RSI has been over 93 since 10 February and is now at 99.89. So once the VTI enters the Trend Mode, you can forget about the 2-period RSI. Right now, I’m waiting for the VTI to tell me when the current rally is over.
The Dow remained below its Upper Bollinger Band after yesterday’s trading, so it’s still on a Bollinger Band Sell Signal. The Russell 2K small cap index also remains on a Bollinger Band Sell Signal.
Yesterday’s Sector Report showed 20 strong sectors and 4 weak sectors. The Semiconductors, Transports, and Banks continue to lead, with Food, Service, and Energy lagging. The Media Sector had a large negative change in its Delta Trend Score (DTS). A large negative change in a sector’s DTS is usually a sign that the sector is in trouble.
Gold was flat yesterday. GLD rose 0.07 cents to 117.75. GDX fell 0.17 cents to 24.62. The VTI on GDX remains in the Trend Mode, but is moving down. This typically happens when an ETF is completing a wave 2 Blade within a major (wave 3 Up) Uptrend. The 50-day moving average on GDX is now above the 200 and heading up. The fact that the 50 is now above the 200 means that GDX is now in an Up Trend. Odds are that the moving averages will cross today and GDX will start wave 3 of its Wave 3 Uptrend. However, until the moving averages cross on GLD, upward progress on GDX will likely be slow. Be patient.
That’s what I’m doing,
h
Market Signals for
02-22-2017
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
SUM IND | POS |
VTI | POS-T |
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