Weekend Strategy Review May 1, 2016

Posted by professor  at May 2nd, 2016

The Dow fell another 178 points early Friday before staging a late rally to close down 57 points at 17,774.   It was down 230 points for the week.  The NASDAQ finished down 30 points on Friday and down 131 points for the week.

Friday’s action appeared to be a continuation of sub-wave 3 down within Wave 1 down of Major 3 Wave down.  Sub-wave 3 down could have completed late Friday at the 17,652 level.  If this labeling is correct, once all five waves of Wave 1 down complete, the Dow should be trading close to the 17,550 level.

At this point, it’s still appears that the market is in the early stages of its topping process.

Many of the cockpit indicators have turned negative. But overall, the indicators remain mixed.  

The Dean’s List has turned neutral, with QID, DXD, and SH on the List.  TWM, the inverse index ETF for the Russell 2K is still missing.  Also, even though the List has turned neutral, there are still far too many other ETFs on the List for it to be negative. Many of these ETFs now only have a RS ranking of 1 or zero, so the List could be in the process of changing.

Same for The Tide.  Friday’s decline turned 2 of the 4 breadth indicators that make up The Tide negative.  So as of this weekend, the Summation Index and the A-D oscillator are negative, but the Hi-Lo and Up-Down indicators are still positive.

I’m also getting mixed signals from the Money Flow indicators. The Coach(DIA) remains positive but the same indicator on the NASDAQ (QQQ) is negative.

So with a pattern that suggests the market is in the middle waves of Wave 1 down of Major Wave 3 down, and mixed signals from the cockpit, I still want to wait a bit longer before I start getting aggressive on trading the market to the downside.  The mixed indicators are telling me that the market is only in the initial stage of its topping process.  Once Wave 1 down completes, the Dow will likely retrace a good portion of the decline since topping on 20 April at the 18,168 level.  So with the likelihood of another Wave 2 up just around the corner, I don’t see any reason to start shorting now. 

I’d really like to see Waves 1 down and 2 up complete before I do anything.  Once these two waves complete, there should be a nice Hockey Stick Pattern in place that should give us a clear target for the next major move down.  Right now, the only pattern in place is the small Hockey Stick I talked about last week that has a target near 17,550.  And with mixed indictors on the cockpit, those 200+ points are not enough juice to get me excited.

Remember, in the Professor’s Methodology, we trade Pattens, Lists, and Indicators. Right now the major pattern in place is a THT Pattern. However the PT indicators are still mixed, so I can’rt start shorting yet. Also, because The Tide is still mixed, I can’t use my primary startegy for buying inverse index ETFs now that several of these are on the Dean’s List.

This is why I’m still on the sidelines.

Have a great weekend.

That’s what I’m doing,

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.