Professor’s Comments March 19, 2015
Posted by OMS at March 19th, 2015
After being down about 100 points prior to the Fed announcement, the Dow rallied over 300 points after the Fed dropped the word ‘patient’ from its statement on interest rate policy. You would have thought the Fed was announcing a new stimulus program the way the market reacted. For the past few months most traders have been worried about an increase in short-term interest rates. But when Chair Yellen announced what appeared to be a confused policy that could see interest rates increase at almost anytime in the next few months, all the worry seemed to go out the window. The market took off on a tear. It was crazy.
The large intraday move was predicted by the small change in the A-D oscillator.
The internals of the rally were pretty strong and were enough to turn The Tide positive. But it’s barely positive, and if the market pulls back today, it’s likely that The Tide will turn back to neutral.
Volume on the NYSE was unusually strong on the rally, coming in at 120 percent of its 10-day average. There were 211 new highs and 68 new lows. That’s an awful lot of new lows for a day when the Dow rallied 300 points intraday. Very strange.
The Dean’s List, which had been positive going into yesterday’s trading got longer, but not a lot stronger. A lot of ETFs on the List are only rated 1 or zero, so we shouldn’t read too much into the length of last night’s List. However all of the cockpit indicators are positive now, as the rally turned the DMIs on the Dow (DIA) and NASDAQ (QQQ) positive.
So is everything positive now? Hmmm?
Well, not exactly. The problem has to do with the pattern. We still don’t have a really positive pattern.
I went into yesterday’s trading thinking that the first two waves of wave 2 up had been completed, and was expecting wave 3 down to start. My Money Flow indicator (the Coach) was still positive, but I expected it to turn negative if wave 3 down was going to start. This obviously did not happen. Both The Dean and the Coach stayed positive. This is why I never like to trade when The Tide or the Coach are at odds with each other. When they’re opposed, it’s usually because the market is in the middle of some type of corrective wave. And we all know how difficult it is to trade the up-down-up moves of a correction.
So it’s possible that yesterday’s rally was the ‘c’ wave of wave 2. If this is the case, the pattern suggests that the rally should top close to yesterday’s high.
On the other hand, IF the Dow starts to move beyond yesterday’s high, it would tell me that final wave ‘e’ of the Ending Diagonal pattern is NOT complete, and the 2 March top of 18,289 on the Dow will be tested again. As long as The Tide and the Coach remains positive, this scenario must be also considered.
Also, as long as the Dow stays above the 17,620 level, the possibility of higher prices exists.
All I’m doing today is watching. Even though The Tide, Dean’s List, and cockpit indicators are positive, I really don’t want to establish any new long positions now. I’m just gonna wait until I see how the market reacts today.
The CCI on the Dow is at a very neutral reading of +25, so its still a long way from entering the Trend Mode. And the Chandes Trend Score is still a -6. So with an overbought market (2-period RSI on the Dow is 77) and no trend in place, there is a good chance that the market will pull back today. If this happens, then it’s likely that yesterday’s rally was wave ‘c’ of the wave 2 pattern.
If the market does not pull back, then I’ll need to reassess. Like I said, right now there is NO clear POSITIVE pattern in place other than a continuation of wave ‘e’ up within the Ending Diagonal Pattern. And even IF this is what is occurring, the likely top is somewhere between 18,300 –18,500. At this point, I’m not sure if I want to risk my money for these 200-300 points. I need to see more evidence that a new trend is developing. I don’t see it now.
So I’m watching today.
That’s what I’m doing,
h
Market Signals for 03-19-2015 |
|
---|---|
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | 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