Professor’s Comments March 4, 2020
Posted by OMS at March 4th, 2020
There was a very small change in the A-D oscillator last night, so we need to be on the lookout for a Big Move within the next 1-2 days. Up until a few weeks ago, a Big Move for the Dow was 100 points. Now we’re seeing moves of 700 or more points almost every day! So why do I even mention the A-D oscillator today?
Well, given that the last two days have seen the Dow gain 1,294 points and then drop 786 points yesterday…. If the Dow rallies big today, we need to pay attention. That’s because the action we’ve seen since the low made on 28 February is likely an a-b-c move for Major Wave 2 up. If this is the case, Major Wave 3 down could be right around the corner.
Right now, it appears that wave ‘c’ up of Major Wave 2 up could top near the 27,500 level. If it does, that would be a 50 percent retracement of Major Wave 1 down. But it doesn’t have to do this. Wave 2s are notorious for having a mind of their own. So, if the Dow starts to move above the 2 March high of 26,706, I’ll be looking for opportunities to fade the rally.
BTW, yesterday was another 90 percent down volume day. It was the fourth such session in the past 7 trading days. Seeing clusters of 90 percent down volume is a highly unusual event. Looking back, whenever these down clusters have appeared in the past, the market was usually trading higher a week later. The key words in the last sentence are …’a week later’. So, what I’m telling you is the rally I’m expecting could last more than 1-2 days before Major Wave 3 down begins to take hold.
I received an email yesterday from Jim B. asking about the relationship between gold and the dollar. The short answer is that they usually have an inverse relationship. When the Dollar moves up, gold falls. However, this is not always the case. In times of crisis, like a market panic, both can move up together as both are perceived as a safe haven. The thing that has me concerned about gold now is its pattern. Since the metal completed its wave 4 triangle pattern in early December, it has made what appears to be a five wave rally to current levels. The 24 February high of 158 (maybe wave 3 up) was follow by a 3 wave retracement to 147 on 28 February. This a-b-c retracement was likely wave 4 down of the move. If this is the case, wave 5 of Wave 5 up could be nearing completion. So, because of this, I’m not focusing on gold. On the other hand, IF gold begins to show signs of weakness followed by a Sell Signal in its timing indicator, I will begin to add a few shares of an inverse gold ETF to the model. Not now.
One more thing…. yesterday the Fed cut interest rates a half point in an emergency meeting. This caused the 10-year note to fall below 1 percent…I believe this is the first time ever, but I’m not sure. This is the first time the Fed curt rates in an emergency session since 2007. The rate cut places the Bond Market squarely on the path toward negative interest rates, something that should really concern students. The other thing I’m concerned about is why the Fed is using its bullets now? In 2009, the Fed used the cut in conjunction with a QE program to get us out of the recession. Right now, there’s no recession, so why are they shooting their prescious bullets now? Are they that concerned about the impact of the corona virus? What happened with the Fed yesterday was highly unusual, and every time I see something like this, I get concerned. You should too.
For today, watch the shape of any rally. If it appears corrective (a-b-c) it will be another clue that we could be seeing wave ‘c’ of Major Wave 2 up.
h
Market Signals for
03-04-2020
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
A/D OSC | SM CHG |
DEANs LIST | NEG |
THE TIDE | NEG |
Index | Signal | Signal Date |
---|---|---|
DOW | NEG | 24 Feb 2020 |
NASDAQ | NEG | 24 Feb 2020 |
GOLD | NEU | 28 Feb 2020 |
U.S. DOLLAR | NEG | 02 Mar 2020 |
BONDS | POS | 07 Feb 2020 |
CRUDE OIL | NEG | 24 Feb 2020 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments