Professor’s Comments June 22, 2017
Posted by OMS at June 22nd, 2017
The Dow fell 57 points yesterday, closing at 21,410. Volume was moderate, coming in at 100 percent of its 10-day moving average. There were 91 new highs and 120 new lows. The number of new lows exceeded the number of new highs or the first time in months. This is NOT a good sign for the market. The fact that this is occurring with a negative A-D oscillator is NOT something you want to see if you are Bullish. The past two days of decline have increased the odds that the Major Wave ‘D’ scenario is occurring. As I mentioned yesterday, I really don’t like how this pattern has formed, perhaps ‘morphed’ is a better word, but its irregular shape can still constitute a 3-3-5 pattern which means that it could be part of Wave ‘D’ down within the large consolidation triangle. Here’s the thing: If the Dow and SPX are not in final Wave ‘E’ up on their way to 22,000 which is my primary scenario, then the alternate scenario of Wave ‘D’ down is likely occurring. This alternate scenario could see the Dow decline to about the 21,100- 21,150 level before starting a Wave ‘E’ rally. If the Dow declines more than that, the patterns are morphing and something else is probably occurring. Right now, with mixed indicators on the cockpit, it’s hard to tell. This is one of the reasons I’m NOT using the Dow and SPX for my primary wave count. The wave count and patterns are too unclear. So, I’m focusing on the large Hockey Stick Pattern that appears to be developing on the NASDAQ 100 (QQQ). Since 9 June, when the Q’s broke down, the ETF has been forming the ‘Blade’ of large Hockey Stick Pattern. Yesterday’s rally did nothing to change that pattern. If you look closely at a chart of the QQQ, the Hockey Stick appears to be developing as the right shoulder of an even larger Head & Shoulders Pattern. The neckline of this pattern is a trend line connecting the lows of 18 May and 12 June. As of last night, this neckline is near the 137.74 level or close to where the lower Bollinger Band is located. So IF the Q’s start to break below 137.74, the ‘Stick’ would project a 6.4 point decline to the 131.3 level. A move like this would likely cause the Q’s to test 200-day moving average support near 128. Then IF the 200 is broken, it would constitute a ‘Rope Jump, identifying the decline as part of Wave 1 down of a new Bear Market. This is why I continue to watch the Q’s. The Q’s and the ‘FANG’ stocks led the post election rally higher. They were ahead of the Dow and SPX in terms of wave counts. So now, IF they start to break down, it will be interesting to see IF these same stocks lead the market lower. BTW, do NOT ignore the change in the ratio of new highs to new lows mentioned at the top of these Comments. It is a significsant warning sign, especially with a negative A-D oscillator. Remember, a negative A-D oscillator means that most stocks on the NYSE are now in down trends. The fact that the DMI on the Dow is still positive only reflects what’s happening with 30 stocks. If you are not trading the large cap industrials, odds are that your stocks have moved into down trends, so please be careful. In the past, I have seen large down moves (>15 percent) begin when the A-D oscillator is negative and number of new highs and new lows are high and the numbers change to favor the new lows. Yesterday’s Sector Report continued to weaken. The report now shows only 12 strong sectors, down 3 from the previous day, and 12 weak sectors. Leisure, Computer, PharmaBio, Healthcare, and Semis lead the strong sector list, with Energy, Autos, Retail, Telecoms, and Materials lagging. Yesterday I talked about how the junior gold miners in GDXJ would likely see a short-term rally as part of sub-wave ’b’ up within an a-b-c pattern for wave 2 down. This is exactly what happened. I expect this short-term rally will continue into today. Then once this rally completes, GDXJ should start a re-test of the 32.13 level. A break of 32.13 would likely mean that wave ‘c’ of wave 2 down has started. Wave ‘c’ down should take GDXJ down to the 27-30 level. I will be looking to scalp the miners on any weakening of the indicators on short-term bars. BTW, crude oil appears to be bottoming. Check out the Three Lows to a Bottom (TLB) pattern on OIL. If the DMI turns positive, I’m a buyer. The interim high of pattern (target) is the 6 level. Yesterday, OIL closed at 4.57. Here’s the thing: I’m not terribly crazy about crude oil now, as the world appears awash in it. But I’ve been watching the as the Saudi’s continue to cut production. At some point, I believe crude prices will start to rally from their extremely oversold conditions. The rally probably won’t change the longer-term dynamics of crude oil, but short-term, it could make for a nice trade. That’s what I’m doing, h Market Signals for 06-22-2017
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