Weekend Strategy Review March 29, 2015
Posted by OMS at March 29th, 2015
Last weekend, I started off this WSR by saying “The market is at a very dangerous place”. I still feel that way, but now the Dow is down 415 points from last week’s close.
On Friday, the Dow retested the 17,630 level and held as predicted by The Professor algorithm. So it appears that wave 1 of 3 down is complete and retracement wave 2 up is underway. This wave should see the Dow retrace to the 17,800 -17,900 level before it completes, probably early next week. After that, a very strong, impulsive wave 3 of 3 down should strike, taking the Dow below the 17,000 level. This is my primary scenario now that major support at the 17,620 level has been broken.
When I ran the Professor after Friday close, he was highlighting 33 stocks as longs. This tells me that the retracement wave has started. And because of the Bullish end-of month bias, it’s likely the retracement will last into early next week.
I will be using this retracement rally as an opportunity to get short.
Friday’s 34-point rally was actually pretty strong when looked at from a breadth perspective. The rally was enough to turn 3 of the 4 breadth indicators that make up The Tide positive. So the Tide is neutral.
This does NOT mean that I will be looking to trade the rally now, as The Dean’s List, Coach, and PT indicators are still negative. I never like to trade the long side with a negative Coach.
In Friday’s Comments, I talked about shorting Apple (AAPL). I mentioned that one of the reason’s I’m looking at Apple now is because the Coach on Apple, my primary indicator for measuring Money Flow, is negative. In other words, the Big Boys are no longer buying Apple. Now, they’re selling the stock. And as we saw on Friday, even though the Dow was up, APPL was down 0.99 cents.
The reason I’m mentioning Apple again today is because the Coach on the Dow (DIA) and NASDAQ (QQQ) are now negative. In other words, these indicators are telling me that money is now leaving both of these major markets. So now that I know this, I am starting to look for a few individual stocks to short that also have negative money flow indicators. Apple is one of them. Apple also has a negative pattern (THT) and negative PT indicators.
Right now, there are a lot of Big Cap stocks with charts that look just like Apple’s. So during the next few days, you might want to look at your stocks and compare them to Apple.
Do they have THT Patterns? Are the PT indicators negative? Are they still in Uptrends, like Apple, or has the 50 already crossed below the 200? Hmmm? These are things that you should be looking at this weekend.
And if you see weakness in any of your stocks, you might want to do something about it IF the market rallies early next week.
Remember, my primary scenario now that the Dow has broken through the 17,620 level is that a new Major Bear Market has started. We’ll likely see some choppy, volatile trading in the days ahead as wave 2 up retraces some of the 600 points lost since the 23 March high. But as long as the Dow does not exceed 18,206, any rally MUST be treated as a retracement rally within wave 3 down.
This is why I will be looking to establish short positions from the 17,800+ level using inverse index ETFs from the Dean’s List. One reason I will be looking to short the indexes with inverse ETFs is because two of the indicators that track the Money Flow for the Dow (DIA) and NASDAQ (QQQ) are posted on the cockpit. So IF the Coach for the DIA is RED, then I know that money is flowing out of the Dow. And IF The Tide is RED at the same time, then I also know that breadth on the NYSE is also negative. These are two very powerful indicators, and when positions are established in the direction of the indicators, the odds for a successful trade increase significantly.
On the other hand, If positions opposed to the Tide and the Coach are held, the potential for a significant loss is high.
Like I said at the beginning of this WSR, the market is at a very dangerous place now. The Ending Diagonal Pattern that we have been tracking for months appears to be complete. We know from Class that Ending Diagonals are termination patterns that usually do not end well. And since 2 March, when the Dow topped at 18,289, the index has fallen in what appears to be waves 1 down and 2 up of Major Wave 1 down. The impulse wave of the new pattern, wave 3 of Major Wave 1 down, appears to have started on 23 March. And now the preliminary waves of wave 3 down are in the process of developing.
So IF the market rallies early next week, use the rally wisely. If something starts to look, waddle, and quack like a duck, I have to give it the benefit of the doubt. It just might be a duck. And this duck might be the start of a new devastating Bear Market.
Have a great weekend. Protect yourself!
That’s what I’m doing,
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