Professor’s Comments December 4, 2015
Posted by OMS at December 4th, 2015
The Dow fell 252 points, closing at 17,478. Volume was heavy, coming in at 123 percent of its 10-day moving average. There were 39 new highs and 168 new lows.
Yesterday’s decline was triggered by comments made by Mario Draghi, the President of Europe’s Central Bank. He simply said that the Bank’s current 60 Billion asset purchase (stimulus) program would continue. Prior to the announcement the Dow futures were up over 70 points. Immediately after the announcement, the Euro started to rise and traders who were short the Euro were forced to cover their positions. This ignited a rally in the Euro and caused a decline in the Dollar.
The trading action that followed produced several major changes to the Dean’s List. I’ll discuss some of them later. But before I do, let’s look at what really happened yesterday.
Draghi’s announcement should have been a non-event. It really didn’t change anything. But because so many traders were short the Euro, once the short covering started, it triggered more and more stop orders and the rally continued.
Here’s the thing: I never like to reverse a major position based on what somebody says. And all Draghi did yesterday was say nothing. He didn’t change anything in the Central Bank’s stimulus program. The stimulus program was actually extended by six months. But the markets expected more ‘juice’ , and when they didn’t get it, the Euro started to strengthen. Go figure.
Anyhow, today Super Mario will have another shot at calming the markets as he will discussing the Bank’s policy later this afternoon. This will come on the heels of the Jobs Report which the BLS will be releasing at 8:30am today.
As you know, I’m always cautious about trading in front of a Jobs Report because it can produce a lot of volatile trading. The past two days of trading have caused a 400+ point impulsive decline in the Dow. Impulsive moves can mean that a significant change in direction is occurring. And because both of the scenarios I currently have on the Board are termination patterns, we need to pay attention.
So is the current decline the start of something bigger? Hmmm? I don’t think so. Yesterday’s decline appears to be the ‘b’ wave within an a-b-c pattern to an eventual top near 18,350+. If this is what’s happening, the Dow could continue to fall to the 17,250 level, +/- 50 points, before the final wave ‘c’ rally back to 18,350+ begins. So trade cautiously. Last week I said that trading to the eventual top will NOT be straight up. We’re seeing this now.
BTW, you might want to note a few changes that occurred to the Dean’s List. First of all, note that most of the ETFs on the List are ranked either 2 or lower. In other words, it is NOT a very strong List. This means that it can easily change. And while the three major index ETFs have fallen off the List, both UWM and IWM, the two positive ETFs for the Russel 2K are still ranked high on the List. So the Dean is telling us that at least one market is still strong. And as long as the Russell remains strong, I don’t see how a major crash can start. So I’m still going with my a-b-c correction scenario toward an eventual top near 18,350+. At least for now.
This could change if today’s Jobs Report disappoints investors and causes the Dow to fall below 17,200. As long as the Dow stays above 17,200, it should be OK.
The other change of note was that TMF, the long Bond ETF which was ranked # 3 on Wednesday’s Dean’s List dropped off the List and was replaced by TBT, the inverse Bond ETF. The current pattern for TBT also suggests lower prices for Bonds.
Since forming a TLB pattern this past summer, TBT has formed a nice ‘Blade’ with two lower lows, the last of which occurred on 2 October near the 41 level. Since then the ETF has made a ‘Rope Jump’ on 9 November which suggests that a new rally wave could be starting for the inverse ETF.
This switch from TMF to TBT on the Dean’s List could be forecasting a rate hike when the Fed meets on 16 December to discuss interest rate policy. The charts also suggest that a rate hike is in the cards.
Actually what the charts appear to be saying is that not only is a rate increase coming, there might also be a temporary halt in the rise of the Dollar. Yesterday UDN, the inverse Dollar ETF re-appeared on the Dean’s List. It was also accompanied by the appearance of GDX, the gold miners ETF. Gold and the Dollar tend to have an inverse relationship.
It’s still early, but you might want to watch how TBT, UDN, and gold react during the next few days.
If TBT, UDN, and gold continue to move higher, you might want to keep your eyes on the trend indicators.
Also, you might want to take a look at EWA, the positive ETF for Australia. The ETF recently appeared on the Dean’s List after forming a nice TLB pattern. Australia is a mining country, so when it appears on the Dean’s List, it’s usually a good sign for the metals. The DMI is positive along with positively diverging Money Flow indicators. The pattern suggests the next move will be a ‘Rope Jump’.
Waiting for the Jobs Report.
That’s what I’m doing,
h
BTW, I’m currently on Celebrity’s Reflection sailing back to Miami. We have an early arrival tomorrow, so I probably won’t be posting the WSR until Sunday.
Market Signals for
12-04-2015
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEU |
THE TIDE | NEG |
SUM IND | NEG |
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