Professor’s Comments February 4, 2016

Posted by OMS  at February 4th, 2016

The Dow fell 194 points early before recovering to finish up 183 points at 16,337.  It was another volatile day.  Volume was heavy, coming in at 111 percent of its 10-day average.  There were 89 new highs and 227 new lows.

Not much changed with the indicators or the pattern after yesterday’s trading action.  However, the early decline to below 16,000 and rapid turn-around produced a Hammer Candlestick that is often seen at significant bottoms within a pattern.

So if the Dow bottomed yesterday, it makes more sense to label it as wave ‘b’ within an a-b-c pattern of Major Wave 2.  If this is the case, then prices should continue to rally from current levels and approach the 17,000 level before Major Wave 2 up is complete.

The past three days of trading have caused a small ‘Blade’ to form on the 1,060 point ‘Stick’ since the 20 January bottom.  So if these 1,060 points are added to yesterday’s intraday low of 15,960, it projects a Major Wave 2 target for the Dow of 17,020.  At this point, I don’t believe that prices will reach that high even if Major Wave 2 up is underway, but it is possible.  The reason I feel Major Wave 2 will complete under 17,000 is because the other major indexes are not nearly as strong as the Dow.  And if the Dow does start to rally, it will likely be checked by the smaller cap issues on the NASDAQ and Russell 2K which are having a tough time of it lately. 

The Tide and both Money Flow indicators remain positive while the Dean’s List continues to stay negative. So the signals from the cockpit remain mixed.  Whenever the cockpit signals are mixed, it’s likely because the market is in some type of corrective wave, so I trade cautiously until they line up on one side or the other.

Once the current corrective wave completes, I would expect the market to start a very strong decline.  The only difference I see between the two scenarios (minor wave 4 or Major Wave 2) is where they complete.  If the Dow is in the process of completing minor wave 4 up, prices should start to decline immediately.  If they don’t, and move above the 1 February high of 16,511, then it’s likely that Major Wave 2 up is underway with prices approaching the 17,000 level before completing.

Gold stocks had a nice rally yesterday, with GDX finishing up 1.05 points at 15.35.  The Money Flow indicators on most gold stocks, including GDX, are very strong now so it’s possible that Major Wave 4 down in gold has completed and the next major rally wave is starting.  But it’s still too early to tell. Yesterday’s pop in GDX put it within 0.28 cents of making a ‘Rope Jump’.  If prices continue to move higher today and GDX moves above its 200 day moving average, it would make me start watching gold again.

Remember, a ‘Rope Jump’ is usually the first indication that a stock is starting the turn-around process.  Then once the ‘Jump’ is complete, a stock needs to pullback and form a ‘Blade’ before it can move substantially higher.  Right now with gold still in a downtrend (50<200), I MUST see a ‘Rope Jump’ and a Blade before I get serious about gold.  Yeah, I see many gold stocks and ETFs on the Dean’s List now.  All this tells me is that they are stronger than a lot of other stocks at the moment.  But for gold to move substantially higher, there needs to be a completed pattern.  And right now I’m only seeing the TLB portion of the pattern.  I still need to see the ‘Rope Jump’ and the Blade.  Be patient.

That’s what I’m doing.

h

Market Signals for

02-04-2016

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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