Professor’s Comments June 30, 2017
Posted by OMS at June 30th, 2017
The markets fell hard again yesterday. The Dow finished down 168 points, closing at 21,287. The NASDAQ was down 90. Volume on the NYSE was moderate, coming in at 109 percent of its 10-day average. There were 30 new highs and 70 new lows. Students should note that the number of new lows is now exceeding the new highs.
For the past few days I have been talking about the Hockey Stick Pattern on the NASSDAQ 100 (QQQ) and how a break of ‘Blade’ would likely send the Q’s to the 128 level for a test of 200-day moving average support.
I also said that once sub-wave 4 of the decline completed, sub-wave 5 of minor wave 1 would drop the Q’s below Wednesday’s the sub-wave 3 low of 137.74. This happened yesterday when sub-wave 5 of minor wave 1 down completed at the 136.25 level.
Once I saw sub-wave 5 below the sub-wave 3 low, I started exiting the inverse positions I was holding in QID, DXD, and SDOW. All five waves of minor wave 1 down were complete and I started to prepare for a retracement by minor wave 2 up. This retracement started after the 1pm period and lasted the rest of the day. It will probably complete sometime during the next few days, setting the stage for the next down leg, which will be minor wave 3 of Wave 1 down. Then once this wave completes, waves 4 up and 5 down should complete the job somewhere near the 128 level.
But right now, we need to prepare for minor wave 2 up. What do we know about this wave? Hmmm? Well, it should take the form of an a-b-c retracement. Most (about 80-85 percent) of wave 2 retracements are a-b-c patterns. The other thing we know comes from the Principle of Alternation which states that IF wave ‘a’ is simple, meaning straight up, wave ‘c’ should be complex. Also, IF wave ‘a’ is short, then wave ‘c’ should be longer. This are the things I will be looking for as wave 2 up unfolds.
Yesterday’s late day rally was pretty much straight up, so IF it’s NOT finished, the straight up action will likely continue early today. If it does, it will tell us a lot about what to expect during the next few days, when wave ‘b’ and ‘c’ unfold. More straight up action in wave ‘a’ will likely mean complex trading in wave ‘c’ early next week. So IF we see this complex (up-down-up) action develop, we’ll know that wave 2 up is close to topping. That’s when I’ll be watching the short-term indicators very closely so I can re-establish my short positions in inverse index ETFs.
Again, I’m watching and taking my cue from the QQQ, and NOT the Dow or the SPY. The patterns are still too unclear on the other index to base trading decisions on. My best guess for the Dow it’s in Wave ‘D’ down, and should complete near the 21,100 level. But because of the uncertainty of the pattern, I have no way of telling (or measuring) where Wave ‘D’ down will complete. That’s why even though I’m buying a few DXDs and SDOWs when I buy my QIDs, I’m also selling them when the patterns and indicators on the Q’s suggest the waves are complete. Remember, at this point I’m still mostly scalp trading. However, once I see (IF I see) the Q’s at higher levels, and believe that wave 3 down of Wave 1 down is starting, I will likely hold those positions until most of Wave 1 down is complete. I always like to hold my positions during a wave 3. It’s the fun part of trading.
Anyhow, yesterday I received a lot of nice emails from students telling me how much they appreciate my discussion of wave counts on the Q’s and how they profited from this analysis. I always appreciate receiving emails like this. But buried in the stack was an email from a student with what I thought was a great question. I thought I would share it with you this morning.
Mike wrote: “Hank, QQQ and QLD are on the Dean’s List with 0 relative strength rankings. Is a rank of 0 to be ignored or is day trading QID nearly a spec trade?”
In other words, Mike saw the two positive index ETFs on the Dean’s List the previous day, and was wondering why I was buying the QIDs? They were NOT on the Dean’s List. Hmmm?
I thought I would share my answer to Mike because this situation occurs frequently and I want you to know why I do this when it happens. Here’s what I told Mike:
If you have been watching QQQ (and QLD) you noticed that they just appeared on the Dean’s List yesterday. Before that, QID was on the List, telling us the NASDAQ was weak.
So before we can do anything with QQQ or QLD, we need to look at the overall pattern. Remember, my Methodology is based on patterns, indicators AND what’s on the Dean’s List. And right now, the pattern and the indicators on the Q’s are very negative, so two of the three requirements are negative. Because of this, I can’t be buying QQQ or OLD. This is why I’m watching QID for possible entry points. If I’m correct about what I said this morning and QQQ starts to decline, we should see QID back on the List very soon. If this happens, the pattern, indicators AND Lists will be all in sync. Hope this helps,
Last night, QID was back on the Dean’s List. So now once I see the three sub-waves of an a-b-c retracement wave 2 retracement, I’ll be looking to re-establish my short positions using the inverse index ETFs I mentioned above.
Yesterday’s Sector Report was unchanged. The report still shows 14 strong sectors and 10 weak sectors. Leisure, Healthcare, PharmaBio, Computers, and Financials continue to lead the strong sector list, with Energy, Telecoms, Autos, Semis, and Retail lagging. Students should note that the ratio of strong to weak sectors in the Report is still neutral to slightly positive. This tell me that the markets still do not have any clear direction (in other words they are still in the preliminary stages of developing wave 1 and wave 2). Students should watch what happens to the Report once when wave 3 starts to develop.
That’s what I’m doing.
h
U.S. markets will be closed next Tuesday for the 4 July Independence Day Holiday. Looking ahead, I will publish the WSR this weekend and provide comments on Monday’s market in my report on Wednesday, 5 July.
Market Signals for
06-30-2017
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEU |
SUM IND | NEG |
VTI | NEG |
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The Hockey Stick Pattern
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