Professor’s Comments June 29, 2017
Posted by OMS at June 29th, 2017
The markets reversed Tuesday’s losses and finished higher. The Dow rose 144 points, closing at 21,455. The NASDAQ gained 88 points after being down 101 points on Tuesday. Volume on the NYSE was moderate, coming in at 98 percent of its 10-day average. There were 111 new highs and 20 new lows.
Whipsaws like the one we saw yesterday are an indication that traders are confused and can’t make up their minds. This is something that often happens just before the market makes a big directional move. We saw a lot of whipsaws just prior to the crashes in 1987 and again in 2001. They should be taken as a warning.
I spent most of yesterday watching the NASDAQ 100 (QQQ). Since falling hard on 9 June, the Q’s have been forming the ‘Blade’ of a Hockey Stick Pattern. The lower trend line of that ‘Blade’ was broken during Tuesday’s session, but only slightly. However, a break of the trend line was enough to generate a Sell Signal on the indicators for the Q’s. The trend line break also signaled a potential move down to the 128 level where 200-day moving average support is located. So, I was watching.
But the one thing we know about the markets is that they never move straight down. OK, maybe they do sometimes, when the market is in a wave 3 of 3 down. But that’s NOT what we’re dealing with now. At the moment, the market is still only in the initial stages of putting in a major top. It’s still working on Major Wave 1 down…at least for the NASDAQ. So we can’t expect a full blown decline yet. There are still way too many traders and investors looking to buy the dips. And that’s what happened yesterday.
Once the patterns clarify, and it becomes obvious that the markets are heading down, investors will no longer be anxious to buy, and the bids will evaporate. That’s what causes market crashes. But we’re not there yet.
So, while the market was moving higher yesterday, mostly as a result of short covering, I was putting the QQQ under a 15-minute microscope. I wanted to see if Tuesday’s decline would provide any clues in terms of sub-wave count. What I found was interesting.
Let’s talk about it. If you pull up a 15-minute chart of the Q’s, and look at the action since Monday’s early high, you will see an initial decline (sub-wave1) followed by a sideways move for sub-wave 2 down. Then on Tuesday, the Q’s gapped down at the open. A gap is usually a good indication that an impulse move is starting. Hmmm? Impulse moves are usually seen in wave 3’s. And wave 3’s are almost always five wave affairs. So on Wednesday, I was looking for five waves down. The gap was sub-wave 1. It was followed by a sideways move for sub-wave 2 into about 11:00am. Then sub-wave 3 down took the Q’s impulsively lower into the 1:00pm time period. The move was followed by a small wave 4 retracement into 2:00pm before finishing lower into the close. In other words, all five waves of sub-wave 3 down completed on Wednesday, near trend line support of the ‘Blade’.
So, it was no surprise that the Q’s rallied yesterday. Sub-wave 3 down had completed its five waves and sub-wave 4 up was about to start.
Some of the things we know about a wave 4 rally is that it can easily retrace all of wave 3, but it should NOT invade wave 2’s territory. Yesterday’s rally DID NOT invade wave 2’s territory. Also, the sub-wave 4 retracement should form either a five-wave triangle or a complex a-b-c pattern which is usually a 3-3-5 flat. Yesterday’s retracement had five waves, so it’s possible that a triangle is complete. If yesterday’s moves were part of a 3-3-5 flat, then the Q’s still need one more small decline followed by another small rally before the flat pattern is complete. This should happen today.
All of the above trading action has caused another small Hockey Stick Pattern to develop on the 15-minute Q’s. The ‘Blade’ of this pattern sets the stage for post-Holiday trading next week.
So, IF I’m right about the sub-wave counts on the Q’s, once the current sub-wave 4 rally completes, the Q’s should fall below yesterday’s low of 137.74 to complete sub-wave 5 of wave 1 of Major Wave 1 down. If this happens, there should be an a-b-c retracement for wave 2, followed by waves 3, 4 and 5. These waves should complete near the 128 level. If this happens, it will tell us a lot about the future direction of the markets.
Yesterday’s Sector Report improved slightly. The report shows 14 strong sectors and 10 weak sectors. Healthcare, PharmaBio, Leisure, Computers, and Financials continue to lead the strong sector list, with Energy, Telecoms, Semis, Retail, and Autos lagging.
Today, I’ll be watching the Q’s looking for entry points on QID, the inverse ETF for the QQQ.
That’s what I’m doing,
h
Market Signals for
06-29-2017
DMI (DIA) | POS |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
SUM IND | POS |
VTI | POS |
One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE
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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