Professor’s Comments December 29, 2015
Posted by OMS at December 29th, 2015
The Dow fell 24 points, closing at 17,528. Volume was light, coming in at 65 percent of its 10-day average. There were 53 new highs and 25 new lows.
Yesterday was another light volume session that did not produce any significant changes to the overall pattern. Here’s the issue:
The Dow is basically stuck in a Declining Wedge Pattern that is bounded by two large trend lines. Right now these trend lines are close to 17,700 on the upside and 17,100 on the bottom. The next major move of the Dow will be determined by a break of one of these trend lines.
If the Dow breaks 17,700 to the upside, then its highly likely that it will retest the May high of 18,350+, possibly getting as high as 18,500. If 17,100 is broken to the downside, it’s likely the Dow will decline to below 16,000.
Do we have any clues as to which of the above scenarios is more likely? Yes.
Wedge Patterns are Bullish consolidation patterns. Think of them as the ‘Blade’ of a Hockey Stick. Prices usually leave the pattern in the direction they enter the pattern, which in this case is up.
So IF the current sideways pattern is a Wedge, we need to be looking for positive signs that could start the upside breakout. Yesterday, the Money Flow indicator on the NASDAQ turned positive. So now both Money Flow indicators are positive. That’s a positive sign.
Same for The Tide. It too is positive.
But the Dean’s List is still neutral to negative. It needs to turn positive.
Also, Emeritus has not been highlighting any stocks to trade, which tells me that the uptrend has not started yet. This is being confirmed by the trend indicators, which are all in the neutral zone.
So for now I’m just going to be patient and wait. Remember, as long as the Ending Diagonal scenario is on the Board, there is a real and present danger to stock prices. With the Dow at 17,528, it’s less than 200 points from its upper trend line. The Bullish post-Christmas seasonality and positive end-of month Mutual Fund buying bias could easily push the market close to 17,700 during the next few days. But what happens after that? If I get too aggressive here and the Dow doesn’t break 17,700, then I could be buying right at the top of the Wedge Pattern. This is why I’m still being cautious for now. It’s also why I plan to continue to look for scalp trades that take me out of the market at the end of the day.
One of the stocks I’m watching today is Seagate Technology (STX). The PT indicators recently turned Green after the stock completed a TLB Pattern. If the market starts to move higher, STX could run back to its 200-day moving average near 46. The interim high (target) between the first two lows the TLB pattern is near 49. STX is currently trading at 36.74. BTW, the thing that caught my attention with STX is that its CCI entered the Trend Mode yesterday. Interesting.
That’s what I’m doing,
h
Market Signals for
12-29-2015
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | POS |
SUM IND | POS |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments