Professor’s Comments March 29, 2017

Posted by OMS  at March 29th, 2017

The Dow rose 151 points, closing at 20,702.   Volume was moderate, coming in at 95 percent of its 10-day average.  There were 95 new highs and 17 new lows.

Yesterday’s rally appeared to be part or all of sub-wave wave ’a’ within an a-b-c retracement rally for Wave ‘B’ up.  If I’m correct about this, then sub-wave ‘a’ should complete near current levels, then pullback to about 20,650 for sub-wave ‘b’ before rallying to the 20,800-20,900 level to complete Wave ‘B’ up.  Then once wave ‘B’ up completes, Wave ‘C’ down should drop the Dow close to the 20,000 level to complete Major Wave ‘D’ down.

When the Dow was up about 170 points yesterday, I bought a few shares of DXD and TWM, the inverse ETFs for the Dow and Russell 2K.  Depending on how the Dow reacts today, I will decide to either keep these shares and try to add to them at higher levels.  Or, I might sell the shares if the Dow falls below 20,650, move to the sidelines and wait for the Dow to move above 20,800 before re-establishing the inverse positions.

Wave 2’s retracement waves are always tricky to trade, and sometimes the retracement can be a lot stronger than one expects.  So, if the Dow does fall below 20,650, I’ll likely take my profit and then wait the wave ‘c’ rally.  On the other hand, I don’t want to get too cute about these trades for 200-300 points, because once wave ‘B’ completes, I want to have something on for a potential decline to the 20,000 level or below.  

Yesterday’s rally caused The Tide to turn neutral.  Two of the four breadth indicators that make up The Tide are now positive.  This is what usually happens in a retracement wave.

Yesterday’s rally also caused a strengthening of the Sector Report. The report had 22 strong sectors and only 2 weak.  The Semiconductors, Banks, Leisure, and Transports continue to lead, with Energy and Service lagging. 

Gold and mining stocks pulled back yesterday as equities and the Dollar rallied.  GLD fell 0.49 cents to 119.04.  The VTI on GLD continues to move up and is close to entering the Trend Mode at 69.  GLD continues to trade above its 50 and 200 day moving averages, but so far it still has not pulled the 50 above the 200, so technically, it’s still in a down trend.  

I believe that GLD has entered its Major Wave 3 up at this point, but sub-wave 2 within Major Wave 3 up may not be complete.  This means that GLD could still have another wave lower within sub-wave 2, possibly as low as 113 before sub-wave 2 completes. 

As I mentioned in yesterday’s Comments, the Dollar was oversold and close to support at the 98 level going into yesterday’s session.  So its strong rally yesterday was not unexpected, putting pressure on gold.  My final target for the Dollar is near the 104-105 level, so IF the dollar rallies to these levels, it will continue to put pressure on gold and mining stocks.  BTW, IF the Dollar does rally to the 104-105 level, I would become very interested in accumulating a large position in gold and mining stocks, because the chart for the Dollar becomes EXTREMELY negative once 104-105 is achieved.  We could see a 60-100 percent drop in the Dollar from the 105 level.  I strongly believe that gold will be one of the places to be in the next few years.  But near term, until the 50 moves above the 200, there could still be some pullbacks.  Remember, gold is still in a minor wave 2, just like the Dow is undergoing a retracement wave ‘B’.  Retracement waves are always tough to trade.  Take small positions if you do try to trade them, or wait until they complete.

I’m not going to put a major short position on (using inverse index ETFs) until I see the Dow above 20,800+.  Right now I’m only holding a few shares of DXD and TWM that I bought near yesterday’s top.  If the Dow moves above 20,800 in sub-wave ‘c, I like the odds for a move down below the 20,000 level.

The last few days of the month are usually positive for the market, so sub-wave ‘c’ up could start in another day or so, after a small wave ‘b’ decline.  If this happens, I would expect the Dow to reach the 20,800+ level in early April, completing wave ‘c’ of ‘B’ up.  Then once Wave ‘B’ up completes, the rest of April should be very negative as Wave ‘C’ down takes to Dow to 20,000 or below.’   Getting short equities above Dow 20,800 could produce some nice profits before the summer rally starts in early May and takes the Dow to new highs.

That’s what I’m doing,

h

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03-29-2017

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