Professor’s Comments May 19, 2016

Posted by OMS  at May 19th, 2016

After a volatile trading session caused by Feds minutes that left the markets confused about a possible interest rate hike in June, the markets finished mixed.  The Dow was basically unchanged, closing up 3 points at 17,527. The NASDAQ performed a lot better, rising  23 points to 4,739.   Volume on the NYSE was moderate, coming in at 108 percent of its 10-day average.  There were 81 new highs and 34 new lows.

Yesterday’s session did not change anything within the overall Rounding Top pattern.  All it did was continue the development of the right shoulder of the Head & Shoulders sub-pattern within the Rounding Top.  The neckline of the H&S remains at the 17,500 level and once this level is broken to the downside, prices should start to fall below 17,000.  The Money Flow indicators continue to suggest this break could happen within the next 1-2 weeks, possibly starting as soon as today.

All of the cockpit indicators, including The Tide and the Dean’s List, remain negative.  It is never wise to fight these indicators.  Bad things can and do happen when these indicators are negative, especially when the overall pattern is projecting significantly lower prices.  Protect yourself.

I had a lot of fun yesterday shorting Caterpillar (CAT).  I posted the trade just after the open, and by the close it was down over a point.  The reason I posted this short is because I’m seeing a lot of stocks that have charts that look very similar to CATs.  

The reason I’m interested in CAT is because of the classic Hockey Stick pattern it has developed on the Daily chart.  After reaching a rally high if 80.89, the stock has declined to the low 70s, producing a ‘Stick’ of about 10 points.  So now IF CAT breaks below the 70 level, it should send the stock to the low 60s.  If you have time today, you might want to take a quick look at CAT’s chart and compare it to the charts of some of the stocks you might be holding or thinking about trading.  If you see this same negative Hockey Stick Pattern, you might want to take appropriate action.

If you use a financial advisor, you might want to call him to discuss these patterns.  Ask him about his plans to manage your money in view of the clear and present danger these patterns present.   If he does not have a well thought out plan to protect your money, I’d be very concerned.  Remember, it’s your money, not his. 

Gold took a pretty good hit yesterday causing some of my indicators to generate sell signals.  Last week I mentioned that IF Wave 3 up in gold has not started, the metal could pull back below 1200 to complete wave ‘c’ of an a-b-c corrective pattern for Wave 2.  IF gold breaks below 1250 now, the odds for a decline below 1200 increase significantly.  If this happens, GLD which closed at 120 yesterday, could retest its 200-day moving average near 113. 

BTW, IF GLD does pull back close to 113, I’ll become very interested in buying it near that level.

That’s what I’m doing,

h

Market Signals for

05-19-2016

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

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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