Professor’s Comments May 20, 2016
Posted by OMS at May 20th, 2016
The Dow fell another 91 points, closing at 17,435. The NASDAQ fell 27 points to 4,713. Volume on the NYSE was moderate, coming in at 102 percent of its 10-day average. There were 25 new highs and 40 new lows.
Students should note how the number of new highs continues to decrease with each passing day and are now being exceeded by the number of new lows. A few weeks ago, the number of new highs was consistently exceeding the new lows by a 10 to 1 margin or more. Now that ratio is starting to change in favor of the new lows. Once the major down trend starts, the new lows will start exceeding the new highs by 10 to 1 or more. Just something to watch.
Yesterday’s decline appeared to be part or all of a small wave 1 within a larger wave 3 down. If this is the case, then the market should rally today to form the wave 2 ‘Blade’ of a small Hockey Stick. If this happens, I will look to add to my short positions for a possible wave 3 of 3 down.
My targets for the small wave 2 up are >17,500 on the Dow and above 2045 on the SPX. The SPX could get as high as 2060 before wave 2 up completes. I’ll be looking to establish short positions in the indexes on any rally above these numbers.
Remember, in the Professor’s Methodology, we look for patterns to form because they are the set-up for an impulse wave. In this case, once the small wave 2 completes, the next move down should be impulse wave 3 of 3 down. This is the fun wave if your trading the short side. If you’re still long, it won’t be a lot of fun. It could be very painful.
Wave 3 down should start slowly with another break of the 17,485 level. The next stop should be a test of 17,000 which is the target of a H&S Pattern. Then there should be a small pause, before the power of the larger Rounding Top Pattern takes over finishing an impulse which should re-test the February lows near 15,500. Like I said, the complex patterns that are forming now have the potential of causing a lot of pain. The Tide and the Dean’s List are now negative. Please respect these patterns and indicators.
CAT dropped another 1.16 yesterday to 69.43. So now the stock is below the 70 level (pattern support) with a VTI reading of 18.68. In other words, it’s in a nice down trend. The HS pattern has a target in the low 60s. So if CAT rallies today with the market, I will be looking to short the stock on any bounce.
Last night when I ran the Emeritus algorithm, he highlighted several shorts for the Honor Roll. Emeritus has been very quiet for the past few weeks as the market has been rolling over. But now that several stocks are starting to trend, he’s becoming active again.
If you look closely at the shorts Emeritus is highlighting, you will see that all have patterns very similar to the pattern on CAT. Hmmm? So If a lot of stocks are starting to show similar negative patterns, if they all start breaking below their support levels, things are going to get very nasty very quickly. Please take a look at your stocks. Do they have similar patterns? If they do, you might want to take steps to protect yourself.
Gold was basically flat yesterday, closing at 1258. Students need to watch for a break of the 1250 level as it would mean a decline to below 1200 is likely.
That’s what I’m doing,
h
Market Signals for
05-20-2016
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEG |
SUM IND | NEG |
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