Professor’s Comments July 31, 2015
Posted by OMS at July 31st, 2015
The Dow fell 5 points, closing at 17,746. Volume was moderate, coming in at 98 percent of its 10-day average. There were 84 new highs and 78 new lows.
Not much changed with yesterday’s trading. The small decline on the Dow did manage to turn The Tide back to neural, but that’s about it. The cockpit indicators remain mixed and I’m still waiting for them to turn negative before adding to my short positions.
It appears that yesterday’s sideways trading was part or all of wave ‘b’ of retracement wave 2. If this is the case, then the Dow should develop one more rally leg pushing it above 17,800 to complete wave 2 up. In yesterday’s comments, I mentioned that under ‘ideal’ conditions, corrective wave 2 should complete somewhere between 17,800-18,000. But right now, conditions are far from being ideal, and because of this the Dow might not reach the target for the pattern.
This is why I have started to establish a few short positions near current levels. I would rather have a few short positions on now and face the risk of the Dow gaining another 200+ points, than not having the positions given that the Dow has confirmed the start of a new Bear Market by trading under 17,465.
So now, please take a moment to reflect on what I just said. We are now in a new Bear Market. Things have changed. From a technical perspective, the recent decline to 17,399 can no longer be treated as a ‘dip’ in a Bull Market. Most folks on Wall Street still don’t understand this. The commentators on CNBC and FOX Business News certainly don’t understand this. And more importantly, it’s highly likely that your broker or financial advisor doesn’t understand this. But the fact is that real technical damage has been done!
For months, we watched as the the fifth leg of the Bull Market from March 2009 formed an Ending Diagonal. We talked about the Ending Diagonal being a termination pattern, and that once it broke below its lower support line, it should trade down to where the pattern started, near 15,855.
Then in early June, we watched the Dow make a downside ‘Rope Jump’, indicating a possible wave 1 of the new Bear Market. This was followed by a retracement wave 2 up into mid-July. Since then the Dow has made another downside ‘Rope Jump’ but this time breaking below the previous low of 17,465 to signal that wave 3 down is underway.
And now, the Dow is retracing in a wave 2 up of 3 down. In other words, wave 3 of 3 down should be just around the corner once wave 2 up completes.
This is why I want to hold a few short positions now.
I plan to hold these positions and add to them the next time The Tide turns negative. Remember, the last time The Tide turned negative, it led to a decline of over 520 points for wave 1 down. So once corrective wave 2 up completes and The Tide turns negative again, I would expect The Tide to signal another large decline, only this time much greater.
Being patient.
That’s what I’m doing,
h
I forgot to mention it in this morning’s comments, but there was a small change in the A-D Oscillator last night. Because of this, we need to be on the lookout for a Big Move within the next 1-2 days,
Market Signals for 07-31-2015 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | NEU |
THE TIDE | NEU |
SUM IND | POS |
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