Professor’s Comments April 6, 2016

Posted by OMS  at April 6th, 2016

The Dow fell 134 points, closing at 17,603.  Volume was heavy, coming in at 114 percent of its 10-day average.  There were 99 new highs and 19 new lows.

Yesterday was the first day since the current rally began on 16 February where the market fell substantially on heavy volume and negative breadth.  While the decline changed a few of my key indicators, it did NOT generate a new sell signal across the board. 

The first change was that both the DMI and the Money Flow indicator on the Dow (DIA) turned negative.  So now the DMIs and Money Flow indicators are mixed.  These key indicators are negative for the Dow(DIA) but remain positive on the NASDAQ (QQQ.

The second change is not so obvious as it involved the breadth indicators that make up The Tide.  Last night, the Up-Down oscillator, the third breadth indicator of The Tide turned negative.  So now 3 of the 4 breadth indicators are negative.  The lone holdout is the Hi-Lo indicator.  Once this indicator turns negative, I will start buying inverse index ETFs from the Dean’s List.

Remember, this is my primary strategy for trading Bear Markets.  I simply wait for The Tide to turn negative and then buy inverse index ETFs as they start to appear on the Dean’s List.  Right now, there is nothing to buy, as the Dean’s List is still positive.  There aren’t any inverse index ETFs on the List.

Also, whenever the DMI on the Dow(DIA) turns negative, I run The Professor algorithm to see if it confirms the DMI turn.  If the DMI turns positive, I look for the Professor to highlight more than 50 stocks.  This usually leads to a rally of more than 700 Dow points.  When he highlights more than 100 socks, it usually leads to a rally of more than 1,500 Dow points.

But I don’t have that much data for the declining side.  In the past, I have seen significant declines start with as few as 28 stocks being highlighted as shorts.  For example, the decline that started in late December was confirmed when The Professor highlighted 45 stocks as shorts.  Last night the Professor only had 35 shorts, so he’s not giving us a clear signal at this point.  This is not too surprising as The Professor is a trend algorithm and with a positive DMI on the NASDAQ (QQQ), the large data base of stocks that he looks has not started to trend lower. 

BTW, the major decline that started last July began with The Professor highlighting 35-38 stocks as shorts over a three-day period.  But then on 24 July, The Professor started to scream ‘get short’ by highlighting over 50 shorts.   This signal let to a decline of over 2,000 Dow points. 

I’m going to take the above mixed signals as another warning.  Remember, the overall market continues to show significant divergence between price and breadth.  And at the end of the day, it’s usually the breadth that wins.  But given that the current rally is likely a Major Wave 2 up, it will probably not die easily.  So give it time.

My custom trend indicator on the Dow is still very positive, so it will likely take some time to move it out of up-trend territory, and even more to have it enter a downtrend. This is probably why The Professor did not highlight more stocks after last nights DMI turn.

So we wait.  Like I said last weekend, I’m not in any hurry to get negative yet.  The market looks like it’s starting to roll over, but DMI on the NASDAQ is still positive and The Tide is still neutral.  If I’m right about the decline that looks to be coming, there should be plenty of time to get negative.  

I’m just being patient.

That’s what I’m doing,

h

Market Signals for

04-06-2016

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