Professor’s Comments April 29, 2016

Posted by OMS  at April 29th, 2016

The Dow fell 211 points, closing at 17,831.  Volume was heavy, coming in at 114 percent of its 10-day average.  There were 122 new highs and 10 new lows.

Yesterday, the Commerce Department announced that growth in the U.S. was only 0.5 percent, the worst growth in two years.  So after seeing a paltry 1.4 percent last quarter, the market realized that a negative growth trend was in place and used it as the excuse to send prices lower Bottom Line:  Stocks are way overpriced for a growth rate of 0.5 percent. And if companies continue to have revenue issues, as evidenced by the dividend cuts I reported a few days ago, it won’t be long before GDP growth falls below zero putting the economy into recession. If this happens, the Dow will NOT be priced anywhere near the 18,000 level.

While yesterday’s decline broke through the lower trend line of the Wedge Pattern I have been talking about for the past few weeks, it did NOT produce any significant changes to the cockpit indicators.  The DMI and Money Flow indicator on the NASDAQ(QQQ) have turned negative, but these same indicators remain positive on the Dow(DIA).  So the direction and Money Flow indicators remain mixed. 

Same for The Tide.  It’s still positive.  I thought a break of the 17,850 level would produce a change in The Tide.  But it didn’t, so I still have to remain cautious about the short side.

But make no mistake about it…yesterday’s down draft was impulsive.  It was exactly the kind of trading action I expected to see at the start of a major decline.  The only problem is that yesterday’s decline was likely only part or all of wave 3 down within Wave 1 down, so students need to be patient and realize that once Wave 1 down completes, probably 200-300 points below current levels, the market will likely have another Wave 2 rally wave rally before the real damage starts.  In other words, it’s still very early in the topping process.  The market will likely experience a lot of backing and filling over the next few weeks, so be patient.

Here’s something to remember:  In order to make real money in the market, there needs to be a trend in place.  When the market goes into a trend mode, it tends to go in the same direction for weeks or months.  But this is NOT happening yet.  None of my trend indicators are showing that a down trend has started. As a matter of fact, right now they’re only starting to come out of the uptrend zone.  The 35 period CCI on the Dow finally dropped below 100 yesterdays, while my custom Volume Trend Indicator (VTI) is still showing an Uptrend.  Both of these indicators need to go a lot lower before a real down trend starts.

So while I wouldn’t be putting any new money into this market on the long side now, it’s still a bit early for me to start shorting.

BTW, my trend indicators on gold (GLD) are still showing NO Trend.   And right now, the 2 period RSI Wilder is EXTREMELY overbought.  Usually when the RSI is overbought without a trend in place, the ETF starts to pull back.  And because it’s possible that the recent rally in gold is only the ‘b’ wave of corrective Wave 2, I would be very cautious with gold now.  GLD, which is currently trading at 121, could pull back to the 114-115 level if an a-b-c pattern develops for Wave 2.  If this happens, I’ll be looking to buy gold on the decline.

That’s what I’m doing,

h

Market Signals for

04-29-2016

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The Hockey Stick Pattern
The Creation of Waves and Trends
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