Weekend Strategy Review April 24, 2016

Posted by OMS  at April 24th, 2016

The markets finished the week on a mixed note. The Dow was up 21 points on Friday, closing at 18,004.  It was up 106 points for the week.  The NASDAQ was down 40 points on Friday and down 32 points for the week. 

From a pattern perspective, it appears that the small Ending Diagonal or Rising Wedge pattern for wave 5 of ‘c’ up of Major Wave 2 up has completed.  All of five waves of the pattern have three sub-waves which is a classic for a Wedge.  And given that the lower trend line of the pattern was broken on Thursday, it’s highly likely that a significant down turn is starting.

Supporting this argument is the fact that the DMI on the NASDAQ(QQQ) turned negative on Friday.  The DMI on the Dow(DIA) is still positive, so the two directionality signals on the cockpit are still mixed.

Also, The Tide has turned neutral, as the Hi-Lo indicator has turned negative for the first time since 12 February.

At this point, it’s still early in the turning process.  The Dean’s List remains positive and is being supported by the two Money Flow indicators.  

So until I have additional confirmation from these indicators, I cannot say that a top is in.

Thursday’s downside action was impulsive with additional follow through early Friday.  If you subtract Friday’s low from Thursday’s high, it’s about 261 points.  So it’s possible that Minor Wave 1 down of Major Wave 3 down is underway.  If Friday’s retracement rally was part or all of sub-wave 2 up, then once this sub-wave completes, the next decline (sub-wave 3 down) should drop the Dow about 200-300 points before it completes.   This should be followed by a small wave 4 retracement rally followed by a sub-wave 5 decline to complete Minor Wave 1 down.

I’ll be watching for this wave pattern to develop early next week.  If it does, it will be further evidence that the next major decline is starting.

Here’s the thing to remember.  IF Major Wave 3 down is starting, it will develop sloooowly.   The first two waves could take several weeks to develop before the real impulsive action to the down side begins.  So we need to be patient and wait for the indicators to turn.

As long as the indicators remain mixed, there is a possibility that the decline that occurred on Thursday and early Friday were only a corrective leg within the Ending Diagonal.  I don’t believe this is the case, but it’s a possibility.  And if wave 1 down is NOT starting, the Dow could still make one more rally to the 18,200+ level before the pattern completes.

Bottom Line:  The market appears to be in the process of turning negative.  Be patient and wait for the indicators to confirm that a top is in.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

04-25-2016

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