Weekend Strategy Review November 29, 2015
Posted by OMS at November 29th, 2015
The Dow fell 15 points on Friday, closing at 17,798. It was down 25 points for the week. The NASDAQ was up 11 points on Friday and up 23 points for the week.
It appeared that most traders took the Holiday week off as there was little volume and almost no change in prices or patterns.
Yesterday’s small pullback caused the small Hockey Stick pattern on the Dow to continue to develop. So now the ‘Blade’ of the Stick is positioned to serve as the springboard for a re-test of the 20 May highs. The ‘Stick’ of this pattern still projects a target near the 18,388 level.
I still do not expect this move to be straight up. Once the current Blade completes, the Dow should rally to about 18,100, then pullback in a wave ‘4’ before retesting the May high of 18,350. Then when all five waves of wave ‘E’ up are complete, the next major decline should begin. The most likely top should be between 17,978 and 18,388.
Right now all of the indicators on the cockpit, including the Dean’s List and The Tide, are positive. I never like to trade against these indicators. However, I am also very much a risk-reward guy, and right now I see a lot of short-term volatility ahead without a significant amount of potential reward. So while I continue to trade the long side, I’m only doing short-tern scalps.
Last weekend I posted a 60 min chart of the Dow that showed a Hockey Stick pattern that could push the Dow to higher levels. That pattern is still in place. All this week’s sideways trading did was make the pattern stronger.
So if the market starts to move higher early next week, you might want to keep an eye on the a 60 min chart of the Dow and look for a breakout. A move above 17,978 would likely result in a re-test of the May highs.
However the Ending Diagonal scenario is still a possibility. And as long as the Dow stays below 17,978, this scenario remains valid. But with a positive Dean’s List and Tide, the odds for this scenario are lower than the five wave re-test scenario of the May highs.
The Money Flow indicators remain positive, but the fact that they have shown little to no movement tells me the Dow will likely meet strong resistance near the 17,978 level. That’s only 200 points from Friday’s close. By itself that 200 point move wouldn’t be a bad trade, but it brings with it the possibility of a major reversal point. So I wouldn’t want to be holding a lot of long positions overnight near that level.
Last week I showed the three indicators I have been usig to trade this choppy market. So this week you might want to focus on learning how to use these indicators as scalp trading tools. Focus on the Money Flow (Chaikin) and the Trend (Aroon) indicators. As long as they are positive, look to establish long positions whenever the Fast Stochastic is oversold and the momentum starts to turn positive (crosses the 50 line). Then IF you make a few bucks, get out. Don’t be greedy! Right now the odds are high that the market will chop several hundred points higher. But the key words are ‘chop higher’. In other words, do not get too comfortable with your positions.
One of the reasons I say this is because of the way Con Ed (ED), my Christmas trade is behaving. It looks like it’s forming a negative Hockey Stick Patten and wants to enter a down trend. The DMI is negative and there is a 7 point ‘Stick’ that projects to the 57+ level. Normally ED is a very reliable trade going into the Christmas season. But this year it appears that ED and most of the other utilities are anticipating a December rate hike. That 7 point negative ‘Stick’ suggests it could put a damper on any Santa Clause rally.
Another concern is Apple (AAPL). Although the stock has rallied along with the market during the past few months, it is still is a downtrend. The recent high made earlier this month looks more like a retracement wave than the start of a new Bullish pattern. Students might want to watch the 111 level as it will be critical the performance of AAPL during the next few months. As long as the stock stays above 111, the odds suggest a move toward 122.69. However IF 111 is broken, it would signal the start of a decline in the technology sector. AAPL closed at 117.81 on Friday.
Have a great weekend.
That’s what I’m doing,
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