Professor’s Comments November 16, 2016

Posted by OMS  at November 16th, 2016

The Dow rose 54 points, closing at 18,923.   Volume was moderate, coming in at 96 percent of its 10-day average.  There were 157 new highs and 46 new lows.

The Dow broke out of a small Hockey Stick Pattern yesterday, and should be on its final rally to a top.  Next week is Thanksgiving, which is a generally Bullish period in the markets.  So, I would expect final wave ‘e’ up of the current Wedge Pattern to complete near the end of November.   Remember, this final wave ‘e’ up is still a wave within a wedge sequence, so it will NOT likely be straight up.  There should be small corrections along the way.

Yesterday the 2-period RSI on the Dow closed with an EXTREMELY overbought reading of 99.4.  However, the VTI is now in the Trend Mode, so any pullback should be temporary.  At this point, I’m shying away from establishing any new long positions in the Dow, so even if the market pulls back today, I probably won’t be taking advantage of the trading opportunities it will likely present to the long side.  And with the Bullish bias associated with next week’s Holiday, it’s also still too early to be establishing any short positions.

The Dow reached a high of 18,925 yesterday, so it’s now only about 75 points from my ‘trading’ target of 19,000.  The ‘theoretical’ target is still near the 19,200+ level, so students need to assess the risk-reward of placing long trades at current levels.  I still believe that the odds for a test of the 19,000+ level are higher than the odds for the start of a significant decline, because of the breakout from the small Hockey Stick pattern I mentioned above.  But remember, the final wave of a wedge pattern is always subject to truncation, so the Dow might not see 19,000 if this happens.  If the Dow pulls back today from its oversold conditions, I’d put the odds of a test of 19,000+ at about 70-30. 

Crude oil and energy stocks had a nice day yesterday.  OIL, the crude oil ETF gaped higher from EXTREME oversold conditions, propelling energy stocks like SLB 2.45 points higher.  If you recall a few weeks back, I mentioned that the Saudis would be meeting in mid-November to discuss potential cut backs on production.  This is happening now.  Crude at $42 per barrel doesn’t do most producing countries any good, so look for some type of announcement on a production cut within the next few days.  The chart suggests a move to the $48 level, but after that things start to get problematic.  If OPEC can cobble together some type of agreement, crude could move to the $60+ level into early next year.  But getting OPEC to agree on anything is not something I would count on. 

I still believe that most energy stocks are still trades only.  I just don’t like the patterns (or lack of a pattern).  To see what I mean, it’s better to look at a weekly chart of a stock like Schlumberger (SLB).  The daily chart is confused, so trying to position trade SLB over the near term will be tough.  But if you look at the weekly chart, you will see that the stock has formed a TLB pattern that completed in February.  Since then, it has been engaged in a wave 1 rally off the TLB low that resulted in a ‘Rope Jump’ in mid-August.  Therein lies the problem.  Because after a stock Jumps the Ropes, while this is a very positive step in the overall movement of the stock, we know that it will take time for a corrective wave 2 to develop before the stock can push significantly higher in wave 3.  In other words, a stock like SLB will likely trade in a relatively narrow range between 75-84 for the next few months as the wave 2 ‘Blade’ continues to develop.  So, with the stock trading at 81, the near-term prospects are limited. 

BTW, an energy stock like SLB is something students should be watching for another reason.  This is because the traditionally Bullish period of March-April for trading energy is now only 3 ½ months away.  So, IF the weekly ‘Blade’ on SLB continues to develop, it will set the stage for a potential break-out as the market moves into early next year. 

So, for the short term, while I’m still scalping a little energy, I’m focused on….

Gold.  The reason for this is that gold appears to be well into its Major Wave 5 up pattern. To see this, students should pull up a weekly chart of GLD, the physical gold ETF and compare its progress to the progress of SLB. 

Students will see that GLD also had a TLB pattern that ended last December.  Since then, the ETF rallied off the TLB bottom to a wave 1 high which resulted in a ‘Rope Jump’ in early July.  After wave 1 up completed, the ETF has been forming what appears to be a ‘perfectly normal’ wave 2 correction.  That correction has formed the ‘Blade’ of a nice Hockey Pattern.  So IF I’m correct about the wave count, gold should be nearing completion of its corrective wave 2 of 5 up and ready to start an impulse wave 3 up.  This is the reason why I’m focused on gold for the short to intermediate term.  I always prefer to trade stocks or sectors that are in wave 3’s.  It’s where the action is.

That’s what I’m doing,

h 

Market Signals for

11-16-2016

One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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