Professor’s Comments May 25, 2017
Posted by OMS at May 25th, 2017
The Dow rallied for 74 points, closing at 21,012. Volume was moderate, coming in at 96 percent of its 10-day average. There were 125 new highs and 35 new lows.
Yesterday’s rally didn’t clarify the near-term wave count. It’s still possible that yesterday’s rally was part of a sub-wave within Wave ‘C’ down or the final portion of Wave ‘D’ up. If it’s the later, the Dow could rally a bit more, possibly closer to 21,161 before completing. Anything above 21,161 would identify the move as the start of Major Rally Wave ‘e’ up, a move that should take the Dow to the 22,000+ level.
Yesterday’s rally was unusual in that even though the Dow tacked on 74 points, the Hi-Lo indicator on the NYSE turned negative. So now, only 3 of the 4 breadth indicators that make up The Tide are positive. This too points to a triangle.
But the big story yesterday was all about gold and the Russell 2K.
If you were watching gold (GLD) yesterday, it pulled back close to its 50-day moving average, at which point the 2-period RSI became EXTREMELY oversold. It was a screaming set-up for a Rifle Trade. Same for most gold ETFs, like GDXJ and GDX. GDXJ got as low as 30.89. It closed at 32.21, up 0.30 cents on the day!
In other words, gold and mining stocks had a major reversal day yesterday. This is the kind of trading action that usually leads to more rally during the next few days. And this is exactly what we would expect, because yesterday’s pullback also appeared to complete the ‘Blade’ of the small Hockey Stick Pattern that gold and mining stocks have been forming for the past week or so.
GLD, the ETF, is currently in an Up Trend with its 50 above the 200. So, IF it starts to rally, it can move up somewhat easier than most mining stocks, which still have some work to do because they are not yet in Up Trends. However, the ‘Blades’ that have been forming for the past week should be enough to boost prices to the Upper Bollinger Bands, which should permit a ‘Rope Jump’ within a week or so. My indicators continue to show gold on a Buy Signal.
Yesterday’s action on the Russell 2K was interesting because of what it did in relation to the 1,380 level. As the Dow was moving higher, the RUT started off about 6 points higher. But as the Dow kept rising, the RUT started to pullback. If you look at the 5 min bars, you can clearly see that the move down consisted of 5-waves down, dropping as low as 1,376.6. In other words, it traded below 1,380. But then as the Dow got its second wind, the RUT also started to move higher, only this time the move up was accomplished in 3 waves. Hmmm? Five waves down and three up? This is an indication that the RUT could be starting as down trend.
The VTI on the RUT closed with a reading of 42.7, so the index is showing a negative bias (below 50 is negative). The 2-period RSI closed with a reading of 84.94. So the index is slightly overbought with No Trend in place. It could rise a bit more before it becomes EXTREMELY overbought, but once this happens, it should start to pullback.
If on the pullback, the RUT starts to break below 1,380, yesterday’s small early decline followed by the 3-wave retracement, could be waves 1 and 2 of a declining pattern that could take the RUT significantly lower.
It’s why I will be looking to Buy TWM, the inverse Russell 2K ETF, today if the RUT starts to move below 1,380. It could mark the start of wave 3 down within Major Wave 1 down of the next Bear Market. At least for the Russell.
Yesterday’s Sector Report weakened slightly, showing 7 strong and 14 weak sectors. The Semis, Leisure, Computers, Food and Utility Sectors continue to show strength with Autos, Specialty Banks, Real Estate, Service, and Telecoms lagging. As long as the weak Sectors hold the majority, it’s likely the Dow and SPX will remain in the triangle.
That’s what I’m doing,
h
Market Signals for
05-25-2017
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | NEU |
THE TIDE | NEU |
SUM IND | POS |
VTI | POS |
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The Hockey Stick Pattern
The Creation of Waves and Trends
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