Professor’s Comments June 30, 2015
Posted by OMS at June 30th, 2015
The Dow fell 350 points, closing at 17,596. Volume was heavy, coming in at 112 percent of its 10-day average. There were 24 new highs and 353 new lows.
Yesterday’s decline was the Big Move predicted by Friday’s small change in the A-D oscillator. Breadth was extremely weak on the decline with 99 percent of the stocks in the S&P 500 trading down and 99 percent of the volume associated with declining issues. The decline occurred two days after The Tide turned negative on 25 June with the Dow trading at 17,890.
I received several emails yesterday from students who were either following my Strategy for trading ETFs and got negative on the Tide change or who were completely out of the market because of the negative Tide. I appreciate the nice feedback.
Yesterday’s impulsive decline easily broke through the lower trend line of the major Ending Diagonal Pattern at the 17,750 level. The decline also caused the Dow to brake through and close below its 200-day moving average. In other words, the Dow made a ‘Rope Jump’.
OK, so where are we now? Hmmm? Well, one of the things that a ‘Rope Jump’ tells us is that the move is likely part of wave 1 down. And because market is EXTREMELY oversold now, it’s highly likely that the market will retrace some of yesterday’s decline before resuming its down trend. Last night, 18 percent of the stocks in the S&P500 had a 2-period RSI Wilder under 2. That’s something you don’t see very often. It should cause the market to rally today, possibly more.
So IF we bounce today, I’ll be looking at two things. The first will be the Tide. As long as the Tide remains negative, I will be looking to add to my short ETF positions.
Remember, my #1 Strategy for trading ETFs depends on The Tide. I talked about this strategy extensively in both of my recent Update Classes and in ‘Something Old, Something New’, the webinar I did for AIQ Systems on 11 June. BTW, if you did not attend either of the Update Classes or the webinar, I strongly suggest that you get a copy of the webinar. Just call Barbara Greer, AIQ Sales, at 800-332-2999.
Prior to the webinar, I said that one trade using just one of the Strategies from the webinar would more than pay for the cost. Yesterday, you were fully reimbursed….and more!
My strategy for trading ETFs basically says that when The Tide turns negative, I start to look for inverse index ETFs to appear on the Dean’s List. I ALWAYS want to trade in the direction of The Tide. So on 25 June, when The Tide turned negative, DXD and SDS, two inverse ETFs appeared on the List. You could have picked either ETF. The following day, QID joined the List.
But now that the Dow is oversold and had a ‘Rope Jump’, I will be also be watching the 2-period RSI Wilder. Remember, I expect a bounce now. So as long as The Tide stays negative and the Dow starts its wave 2 retracement, I will look for it to become overbought. That’s where I plan to add to my short positions .
On the other hand, IF the bounce causes The Tide to turn neutral or positive, I will hold off on adding to my positions. That’s because there is a possibility that the market could retrace a significant portion of the yesterday’s decline. A wave 2 retracement could take the Dow all the way back to the 18,129 level, which is the 23 June high.
So continue to be careful with your trading. It’s still very early in the topping process. We should expect a lot of volatility in the days ahead. A new Bear Market will not start without a fight. There are still plenty of traders who are still looking to buy the dips. Also, there are a lot of traders who are short now. So any sort of rally will be fueled by their short covering. Expect this to continue. This is what wave 2s are all about. Just remember that once the wave 2 completes, the next leg down will be wave 3.
Today is also the final day of the quarter which tends to be very Bullish as Mutual Fund managers re-balance their positions. This will add to the volatility. It will be very interesting to see how some of the recent high fliers perform today, as any manager who did not own these stocks will likely be putting them into his portfolio today. Even if he hates the stock, and believes that a Major Bear Market is starting. The pressure to appear to be an owner of stocks like NFLX and GILD is intense…even if the manager only plans to own them for one day.
Watching for a bounce.
That’s what I’m doing,
h
Market Signals for 06-30-2015 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
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
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Category: Professor's Comments