Professor’s Comments February 24, 2015

Posted by OMS  at February 24th, 2015

The Dow fell 24 points, closing at 18,117.  Volume was low on the decline, coming in at  87 percent of its 10-day average.  There were 178 new highs and only 21 new lows.

I don’t expect much from the markets today.  Fed Chairman Janet Yellen will be testifying before Congress the next two days in the semiannual Humphrey-Hawkins hearings. It should be interesting to hear what she has to say about the Fed’s future monetary policy, especially in view of what is happening in Europe.

Another reasons I don’t expect much today is because of the current pattern.  It appears that the Dow has started a small wave 4 correction, within wave 3 up of Major Wave ‘e’ up.   So if the market takes a breather and rests for the next day or two while Yellen testifies, it should be a very healthy pause. 

BTW, IF after the small pause, the Dow makes a run at 18,300, it will be a very good sign for additional gains once wave 3 up completes.  It would increase the odds that the Dow would top closer to the 18,500 level and push off the completion of wave ‘e’ of the Ending Diagonal pattern to the late March-early April time period.

So from a timing perspective, you might want to assess whether staying in the market after the reaches the 18,300 level will be worth the extra 200+ points.  You also might want to assess your participation from a volatility perspective, because once the Dow gets closer to 18,300, I fully expect that the volatility that we saw a few weeks ago will start to pick up.  After impulse wave 3 completes, wave 4 down of wave ‘e’ up should take the Dow back below the 18,000 level.  The volatility in wave 4 will probably not be as large as what occurred in January, because that volatility turned out to be associated with the development of the large corrective flag within wave ‘e’.   But nevertheless, as the final waves of wave ‘e’ up complete, they will be volatile enough to test your resolve.

The Dean’s List, Tide, and all of the cockpit indicators remain positive.  The Dow remains in a positive trend mode.  As long as these indicators remain positive, I’m Bullish. 

Gold is very oversold now.  It needs to bounce!  Yesterday. GLD came very close to the 115 level, causing its CCI to close at -91.2.  Gold (the metal) closed at 1201 yesterday.  If it doesn’t hold the 1200 level during the next 1-2 days, it’s likely that the CCI on GLD will move below -100 putting it into the down tend mode.  If this happens, gold will likely fall below 1,150, possibly to as low as 1,100. 

On the other hand, IF gold starts to rally, it could mean that the current wave 2 is over and that impulse wave 3 up is about to begin.  If gold stocks and ETFs start to appear on the Dean’s List now, it will be time to pay attention.  Remember, as I mentioned previously, I expect a lot of good things from gold later this year, but right now, we need to be patient and let the current wave down 2 complete.  There will be plenty of opportunities to own and trade gold later this year.

BTW, with TBT currently on the Dean’s List, it appears that Bonds have entered a corrective stage.  I DO NOT believe that this is a long-term correction but rather a temporary correction in what still appears to be a Bull Market for Bonds.  Right now the long bond is trading near the 153 level after getting as high as 163.  During the next few weeks, I expect bonds will rally back to the 156 level in wave ‘b’ of an a-b-c correction that will eventually take bonds down near the 150 level.  (For those students currently trading TBT, the ETF should be closer to the 50 level).  This is where I will be looking to buy bonds again.  All I will be doing is watching for TLT and TMF to reappear on the Dean’s List.  I believe that bonds have a shot at 170+ before the Bull market in Bonds completes.

Taking a breather while I listen to the Fed Chairman.

That’s what I’m doing.

h

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.