Professor’s Comments December 15, 2015

Posted by OMS  at December 15th, 2015

The Dow fell 172 points early, then rallied to close up 103 points at 17,369.  Volume was heavy, coming in at 112 percent of its 10-day average.  There were only 5 new highs and a whopping 632 new lows.

Yesterday’s early decline was strong as evidenced by the fact that declining issues outpaced advancers by nearly a 3: 1 margin.  That’s a pretty significant number given that the Dow ended the day up 103 points.

But the reason for the rally was not about the improvement in oil prices late in the day as some of the commentators on FOX were saying.  It had everything to do with the fact that the past five days have seen A-D oscillator readings below -160, with the past 2 being below -250 (-257.2 and -294.5).  That’s an oversold market! None of the commentators mentioned the oversold A-D oscillator. They just pick something out of the air, like the small rally in oil, and report it to you as a causal factor.

As a matter of fact, if the market didn’t rally late yesterday, it was setting up for an immediate crash with those kind of A-D numbers.  Remember, the market usually rallies after three days of A-D oscillator readings below -150 or after 1 day of a reading below -200.  So yesterday’s late rally was not unexpected. 

Actually, it’s highly likely that the market will continue to rally today after yesterday’s EXTREMELY oversold reading of -294.5.  The period just before a Fed announcement is usually short-tern Bullish, so the oversold A-D oscillator should continue to push prices a bit higher.

But even though the market will likely rally today, overshadowing everything is Wednesday’s Fed announcement.  It appears that the next major directional move in the market will be determined by what the Fed says in the announcement.  Will they or won’t they raise interest rates?  That is the question.

On Sunday, I posted a scenario that will likely unfold IF the market interprets tomorrow’s announcement as being negative.  With a negative Dean’s List and a negative Tide, this has to be my primary scenario. 

However, if the market likes what the Fed says tomorrow, then the Dow could rally for the next few weeks before starting its next major decline.  So a lot depends on tomorrow’s announcement.

Because tomorrow’s announcement looms large, I’m probably not going to do much today.  But IF the market rallies early, I will likely look for a few scalp trades (shorts), just like I was doing yesterday.  No matter what happens today, I plan to be on the sidelines before tomorrow’s 2pm announcement.

Yesterday I scalped Morgan Stanley (MS) and Allstate (ALL), two of the stocks from the Honor Roll several times.  I had seven straight small winning trades, averaging about $50 each, before my first loser.  Total time in the market was probably less than 90 minutes.  Total amount of shares traded each time was 400 or less.  All I did was use the scalping techniques I outlined for you a few weeks back. These scalping techniques will not make you rich, but they pay the bills. It’s what I do when the pattern is not clear and market is busy chopping around.

The reason I picked MS and ALL is because each has a nice inverse Hockey Stick pattern on the Daily Charts.  IF MS starts to break below the 30 level, the 10 point ‘Stick’ developed last July suggests a target near 20.  A similar case for lower prices can be made for Allstate (ALL) based on its pattern.  I always look to trade stocks with a dominant pattern.  No pattern – No trade.  Then AFTER I see a pattern on the price bars, I start to look at the indicators to trigger the trade.  Pattern first, indicators second.

Then once I see a large pattern on the Daily’s, I look for a small set-up pattern on the shorter-tern bars.  They occur frequently!  Then once I see the set-up, I use the short-term indicators to trigger the trade.  Notice that the last thing I look at when I’m trading is the indicators. 

BTW, yesterday was a very bad day for Apple (AAPL), which even though was only down 0.70 on the day, broke through trend line support near the 113 level.  APPL hasn’t been doing much recently, but if you look at its moving averages, you will see that the stock has quietly entered a down trend.  The 50 is now below the 200 and the stock is showing an inverse Hockey Stick pattern.  APPL is my technology tell, and if it’s starting to break down, I always take notice.  Be careful!

That’s what I’m doing,

h

Market Signals for

12-15-2015

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

The Hockey Stick Pattern
The Creation of Waves and Trends
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