Professor’s Comments March 3, 2015

Posted by OMS  at March 3rd, 2015

The Dow rallied for 156 points, closing at 18,289.  Volume was moderate, coming in at 103 percent of its 10-day average.  There were 191 new highs and 32 new lows.

It appears that the Dow has started  final wave 5 up of ‘e’ up towards the 18,300+ level.  Monday’s rally occurred on relatively light volume which is what I would expect to see as the Dow approaches its ‘topping zone’.  And now that the Dow is within 11 points of 18,300, we need to start preparing for a top that could arrive within the next two weeks. 

The Dean’s List, Tide, and cockpit indicators remain positive.  And as long as they stay positive, the Dow could push toward the 18,500 level. 

However the thing we need to be on the lookout for now is ANY change in The Tide.  Last week, when two of the breadth indicators that make up The Tide turned negative, I mentioned that this was perfectly normal if the market was making a small wave 4 correction.  I said that they would likely turn positive again when the final wave 5 up started, and this is what happened. 

But now that it appears final wave 5 up has started, we MUST pay attention to any change in The Tide.  This is because as the market pushes higher, fewer and fewer stocks will participate in the final rally.  And as this happens, the first place where weakness will start to show up is in The Tide. 

Any change in The Tide now MUST be respected.

One of the things I’m watching closely now is UUP, the positive ETF for the U.S. Dollar.  It’s still hanging on the Dean’s List near the bottom.  Right now it appears that the Dollar has broken out of the Blade of a small Hockey Stick consolidation pattern and is approaching a final ‘spike top’.   The target for this pattern is near the 97 level, or about 2 points from where it closed yesterday.  Interestingly enough, the timing for the Dollar to achieve the 97 level also appears to be about two weeks away, so we could see both a top in the markets AND a top in the Dollar.

This could have a significant impact on the price of gold, which fell back to major support yesterday.  It will also likely cause a major shift in the Dollar-Euro relationship, which has been positive for the Dollar for the past eight months.  Like I said in previous discussions about the Dollar-Euro, currencies tend to move in slow, steady waves.  And when those waves start to approach a point where the pattern suggests a top will occur, I pay attention. 

Right now, I’m trading EUO, the inverse Euro ETF, which tends to move in lock step with the Dollar.  As long as both EUO and UUP stay on the Dean’s List, and the indicators stay positive, I’ll continue to hold EUO.  I’m also limiting my gold purchases to a few ‘trial’ shares.  However IF UUP and EUO drop off the Dean’s List and be replaced by UDN and ULE, I will sell my position in EUO and likely buy UDN.  My next target for the Dollar, once the current ‘spike top’ completes, is down near the 80 level, with the 50 level likely to be tested within the next 2 years.  I’m looking at UDN as a place to park a few bucks in my IRA.

Bottom Line:  As the market approaches the 18,300 level during the next 2-weeks, keep your eye on the following things:

(1.)   Watch The Tide for ANY changes

(2.)   Watch the Dean’s List.  Right now, all of the positive index ETFs are on the List.  If one or more of these fall off the List, it will be time to take defensive action.

(3.)   Watch UUP and EUO.  As long as these ETFs stay on the List, the ‘Spike’ rally in the Dollar will likely continue.  However as the Dollar approaches the 97 level, start thinking about managing your money.  I will be looking to dump EUO and reverse my position.

(4.)   And of course, IF UUP drops off the Dean’s List, look for gold stocks and ETFs to appear on the Dean’s List.  Having UUP fall off the List and the appearance of UDN will be a Major positive for gold traders.

(5.) No change in energy. I’m just being patient.

That’s what I’m doing,

h

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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