Professor’s Comments July 24, 2015
Posted by OMS at July 24th, 2015
The Dow fell 119 points, closing at 17,732. Volume was heavy, coming in at 116 percent of its 10-day average. There were 96 new highs and 330 new lows.
Yesterday’s big decline occurred on heavy volume. It was the second consecutive day that the volume came in at over 110 percent of its 10-day average. By itself, the heavy volume does NOT mean that the market is about to crash. But it is something to be concerned about in the weeks ahead if you’re still bullish about this market.
Yesterday’s decline caused the DMI and the Coach on the Dow to turn negative. It also caused 3 of the 4 inverse index ETFs to appear on the Dean’s List. So now, SDS and TWM , the inverse index ETFs for the S&P500 and the Russell 2K, have joined DXD, the inverse index ETF for the Dow. The only inverse index ETF missing from the List now is QID, the inverse ETF for the NASDAQ-100.
OK, so where are we now? Is this the time to start getting aggressively short? Hmmm? Probably not. I say this because the markets signals are still mixed. The NASDAQ is still showing a lot of strength.
The DMI and the Coach on the NASDAQ are still positive. This tells me that money is still flowing into technology stocks on the NASDAQ. If the overall market is going to ‘crash’, then the NASDAQ should start heading lower too. But it’s not. At least not yet.
Also, because the Dow has not fallen below the 7 July low of 17, 465, I cannot rule out the possibility that the decline since the 20 July high of 18,137 is only the ‘b’ wave of an a-b-c pattern that could take the Dow back up above 18,189 in wave ‘c’ up.
So for now, I’m going to continue to hold my shares of DXD and look for opportunities to add to my short position in the days ahead. Basically, with the NASDAQ still showing positive indicators, I don’t see any pressing need to become aggressive at this point.
If you look at the CCI on the Dow, it is not even close to entering the trend mode. Yesterday’s reading was a neutral –59.02. So with NO TREND in place and a 2-period RSI Wilder reading of 2.83, the market should bounce today from its oversold condition. It will be the extent of the bounce that will determine the market’s next move.
Another reason for my caution has to do with what happened in early July. Remember, the Dow made a ‘Rope Jump’ during this period. So IF that ‘Rope Jump’ was wave 1 down, the rally that started after the ‘Jump’ must be considered wave ‘2’ up. And right now , that rally only has 2 waves, waves ‘a’ up and ’b’ down. Wave 2’s should have 3 waves, so wave ‘c’ up is still missing.
So until the Dow falls below 17, 465, I still can’t discount the possibility of one more rally wave happening.
After yesterday’s trading, the Upper Bollinger Band on the Dow fell to 18,220. So even if the Dow does start a wave ‘c’ rally, I would expect it to be contained by the Upper Band. If the Dow rallies during the next few days, it does not have to make back to the upper Band. It could easily truncate.
Gold continues to show weakness. For the past week, GLD has been trading below its lower Bollinger Band. This is a classic set-up for a Bollinger Band Buy Signal, with the Buy signal being generated once the price closes back above the lower Band. Yesterday GLD traded above its lower Band for most of the day, but could not hold its gain into the close. So the set-up remains in place.
With mixed signals on the cockpit and the possibility of the market ready to start wave ‘c’ up, all I’ll be doing today is watching.
That’s what I’m doing,
h
Market Signals for 07-24-2015 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
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
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.
Category: Professor's Comments