Professor’s Comments January 29, 2014

Posted by OMS  at January 29th, 2014

OK, so we got the rally predicted by the EXTREMELY oversold A-D oscillator.  Now what?

Well as we all know, today is Fed day, so the markets should maintain their positive bias going into the announcement.  You might want to consider closing any short term trades once trading starts to slow about 11 am. The markets will likely be extremely volatile after the announcement.

After 11am, all I plan to do is wait for the announcement.

Yesterday’s 98 point pop took the Dow back up to the 15,928 level.  It got as high as 15,946.  Today’s positive bias should take it closer to the 16,000 level.  But after that things will get tricky.

Here’s the deal:  If the markets interpret the news coming out of the Fed as negative, there is a good change that the Dow could easily fall back below last Friday’s low of 15,783.  If this happens, then there is an excellent chance that the 5 wave sequence for wave 1 will complete somewhere near the 15,700 level, possibly slightly lower.

From that point, I would expect that the a-b-c retracement I talked about yesterday for wave 2 up would begin.  In other words, I DO NOT see the markets tanking yet.  If a Major Bear market is starting, I would expect the next major down wave to start from the higher levels I mentioned yesterday.

One reason I believe this will occur is because yesterday’s 98 point rally triggered a new VIX Buy Signal by closing back below its upper Bollinger Band. VIX Buy Signals tend to be a few days early.

The other reason I feel that any decline will be temporary is because of The Professor.  He’s still way to positive right now for any major decline to begin.   Last night when I stopped by his office, the sign on his door said 25 longs and only 2 shorts. 

So IF the markets do decline today AFTER the announcement, I believe that any move near the 15,700 level should be viewed as a short term Buying opportunity.  Just realize that IF you do Buy at these levels, it should be viewed as a trade only, and NOT something that you will be holding for the longer term.  The conditions are way to risky for this.

As I motioned yesterday, the most likely target for wave 2 up on the SPX will be near the 1820-1830 level.  So IF the SPX pulls back after the announcement to 1775 or below, we’re talking about 45-55 SPX points or about 360-450 Dow points.  Just remember that IF you do plan to trade this rally, it will most likely be a wave 2 with an a-b-c retracement pattern, which is always difficult to trade.

Anyhow that’s about all I want to say this morning.  Let’s wait for the actual announcement to see how the markets react before we go any further. But be cautious immediately after the announcement. Whatever the initial move, I usually wait for about 10 minutes before I decide to trade.  That’s because there is a good chance that the initial move will be a fake out.  So be cautious.

I will be going to the World Money Show in Orlando early tomorrow morning, so I will not have time to write and post my early morning Comments. If I see something that will impact the markets other than what I mentioned above, I’ll talk about it later tonight.  Otherwise I’ll post my next Comments on Friday morning.  All of my Lists will be updated tonight, but because I have class tonight, they won’t be updated until after I get home about 9pm.

I will also be running The Professor starting about noon today.  If he sees something, I’ll let you know.

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

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