Professor’s Comments January 22, 2016
Posted by OMS at January 22nd, 2016
The Dow rose 116 points, closing at 15,883. Volume was moderate, coming in at 100 percent of its 10-day average. There were 4 new highs and 100 new lows.
I didn’t see a lot changes after yesterday’s rally. It still appears that retracement wave 4 up is underway. This wave should finish near the 16,200 level. The real issue is how it will get there.
If you look at a chart of the Dow, Wednesday’s intraday rally off the low together with yesterday’s early pop to 16,039 was likely wave ‘a’ of the retracement rally. It’s also likely that yesterday’s afternoon decline was all or part of wave ‘b’ down. So IF this is the case, the Dow should start wave ‘c’ up as soon as today. Hmmm?
This would be too simple. Wave 4s aren’t simple. They’re complicated. Most of the time they develop into triangle patterns. But so far the pattern doesn’t look like a triangle. For one thing, yesterday’s initial rally leg reached over 16,000, which is a lot more than I would have expected for the first leg of a triangle. So it’s likely that some other pattern is developing.
What can it be? The obvious pattern is a simple a-b-c retracement. But like I said above, that would be too simple. Also, whenever the market makes a simple, straight up correction for wave ‘a’, the ‘c’ wave is usually complex. A simple a-b-c pattern also doesn’t fit the 10 day to two-week time scale that I talked about yesterday. So I’m starting to think that wave 4 could develop into a complex 3-3-5 zig-zag pattern which would satisfy the rules for alternation and time.
All this tells me is that trading during the next few days is going to be very volatile. So IF you’re scalping, prepare for more fun. On the other hand, if you’re a longer-term trader, just relax. Don’t worry about all the intraday waves. Just wait for the Dow to move above 16,000 and then start looking to establish a few short positions.
The thing to keep in mind is that once the current wave 4 rally completes, wave 5 down should drop the Dow to near or below the 15,000 level. So from 16,000, the trade could be worth about 1,000 Dow points. If wave 4 completes near 16,200 where I expect, the trade could be worth even more.
This is why I will be paying close attention to my short-term indicators if the Dow moves above 16,000.
If the short-term indicators give say so, I’ll start establishing a few trial positions in inverse index ETFs. The reason I’ll be using ‘trial’ positions is because the first decline from above 16,000 will likely be a fake out. So I might have to treat these trial shorts as trades if the market turns against me and starts to move higher.
I might have to do this several times IF wave ‘c’ up is complex like I expect. But IF this happens, then it’s likely that the final waves of wave ‘c’ up will form an Ending Diagonal pattern, and that would be a dead giveaway for the next move to come. This is where I would start becoming very aggressive.
So right now all I’m doing is scalping, looking for the Dow to move above 16,000.
That’s what I’m doing.
h
Market Signals for
01-22-2016
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEU |
SUM IND | 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