Professor’s Comments January 30, 2015

Posted by OMS  at January 30th, 2015

The Dow rallied 225 points yesterday, closing at 17,417.  Volume was moderate, coming in at 107 percent of its 10 day average.  There were 233 new highs and 150 new lows.

The number of new lows were enough to turn the Hi-Lo indicator negative, however the A-D oscillator turned positive, so The Tide remains neutral.

Yesterday was another wild and crazy day.  The Dow was actually down about 55 points early before starting its rally.  At its high, the Dow reached 17,433, so the total intraday rally was almost 300 points. The volatility is getting ridiculous.

So where are we after yesterday’s rally?  Well, the truth is that we’re back in NO Man’s Land.

The money flow indicators (The Coach) on the Dow (DIA) and Nasdaq (QQQ) turned positive, which means that the cockpit indicators remain mixed.  The Dean’s List remains negative. So with mixed indicators, I’m gonna stay on the sidelines.

Actually, it’s been kind of fun to be on the sidelines the past few days, watching instead of trading.  I think if I were trading this market now, I’d be going nuts!  Do you realize that during the past three days alone, the Dow has had three 200 point swings?   Remember a few months ago when we used to have to wait for a small change in the A-D oscillator for a Big Move of over 100 points?  Now 200 point moves seem to happen every day.

This is NOT normal.  The fact that the market is moving like this should tell you that something strange is going on.  The volatility reminds me of the period between mid-July to mid- December 2007.   This period was also characterized by many large down-up 200-300 point moves.  And we all know how that turned out. 

The EXTREME volatility continued into early January, and traders started to get used to  it.  They saw prices dip below the 200 period moving average not once, but two times, so they didn’t think much of it when they fell below the 200 for the third time in early January.  Only this time they didn’t recover.  They fell straight down. The Dow fell from 13,279 to 11,634  in 14 trading days.  It was only the beginning.  But the decline was enough to cause the 50 to move under the 200.  The down trend had started.

Three months later, the Dow was back over 13,000.   But now  the move up was no longer Bullish.  The 50 was still below the 200.  The rally was a classic wave 2 Hockey Stick retracement. And when prices started to turn lower on 5 May, they never looked back..  By 21 November, the Dow was down over 5,500 points.

This is what a Major Wave 3 can do.  It can be devastating!  And this is why I’m so concerned about the 17,000 level now. 

Yeah, I know the Dow is still in an Uptrend with the 50 >200.  And IF the Dow falls below 17,000 and starts down, it’s likely that this wave 3 down is only part of Major Wave 1 down.  But still, the decline could be significant…just like the initial Wave 1 decline in 2007.  That one was good for over 2,500 Dow points.

If we break 17,000, I believe we could easily see numbers below 15,500.  That would be another 1,500 points lower or a total of 2500 points from the 26 December high of 18,000+.  In other words, this decline could be just like the wave 1 in 2007.  Hmmm?

So now you know why I’m just watching all the volatility …from the sidelines.

That’s what I’m doing,

h

BTW, during yesterday’s webinar, I had a very interesting question from Brad R. asking about the relationship between the Dollar and the Ruble.  The question came at the end of the webinar, and time had run out,  so I told Brad that I would answer his question off-line.  But after thinking about what a really GREAT question it was and how it impacts so many things, I decided to talk about it in length as part of my Weekend Strategy Review.  Thanks for the question Brad!

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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