Professor’s Comments December 16, 2015

Posted by OMS  at December 16th, 2015

The Dow rose 156 points, closing at 17,525.  Volume was moderate, coming in at 108 percent of its 10-day average.  There were 22 new highs and 190 new lows.

The Fed will be announcing its policy on interest rates at 2pm today.  The Street is expecting a small rate hike, but is already looking past what will might happen today.  It appears that they have already priced in a small one-time hike.  Anything more would be troublesome.  So any hint of a future rate increase will be very important.  I’m still not so sure that the Street is going to get an increase today.  We’ll see.  But whatever the Fed does and the market’s reaction to the announcement will likely establish the direction of the market for the next 3-4 weeks. 

Looking at the charts, it appears that yesterday’s rally was part of wave 2 of 3 down.  Yesterday’s intraday rally got as high as 17,626 before falling 100 points.  So it’s possible that yesterday’s volatile moves were wave ’a’ and ‘b’ of wave 2 up.  If this is the case, the Dow should have one more rally early today to complete wave ‘c’ up into the Fed announcement before the wave 3 decline starts to take hold.

This is the Bearish Scenario that I outlined this past weekend.  It assumes that the Major Wave 2 up topped on 3 November, and that everything since has been part of waves 1 and 2 of Major Wave 3 down. 

However, because the technical picture with respect to the pattern is still very unclear, it is possible that all the moves we are currently seeing are part of a larger degree pattern for wave 2.  If this is the case, then the 12 December low of 17,138 was wave ‘b’ of this larger pattern and the past two days of rally were the start of wave ‘c’ up.  If this is happening, the Dow could easily rally back to the 18,350+ level.

This is why I have only been scalp trading ahead of the announcement.  Yesterday I received an email from Susan H. asking why I haven’t been talking about DXD.  Yeah, I see DXD and the other inverse index ETFs on the Dean’s List.  But we’re also dealing with a complex wave 2 pattern right now, and as we have seen in the past, wave 2’s seem to have a mind of their own. They are very unpredictable!   When I know that I’m dealing with a possible wave 2 pattern, I’m always very cautious.

Right now the Dean’s List and The Tide are still negative, so I have to go with the Bearish Scenario.  However, IF the Dow rallies above the 17,700 level AND the Dean’s List and Tide start to turn positive, I will have to move to the Bullish Scenario for the next few weeks.

So watch the 17,700 level on the Dow today.  As long as the Dow stays below 17,700, it’s likely that wave 2 of 3 up will complete near this level.  Anything significantly higher means that the Dow is likely heading back toward 18,350+.

Waiting for the Fed announcement.

That’s what I’m doing,

h 

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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