Professor’s Comments December 8, 2015

Posted by OMS  at December 8th, 2015

The Dow fell 117 points, closing at 17,731.  Volume was heavy, coming in at 113 percent of its 10-day average.  There were 43 new highs and 336 new lows.

Yesterday’s late rally prevented several of my indicators from generating a sell signal.  Instead, it appears that once the Dow completes another small leg down, probably close to the 17,500 level, it will complete the Bullish Wedge Pattern that started in early November which should support the final wave ‘c’ rally to 18,350+.

Ideally, as long as the Dow remains above the 3 December low of 17,426, the Bullish Wedge Pattern will remain in place.  

The other possibility is that the Do could drop to the 17,200 level in the days ahead, re-testing the 16 November low of 17,210 before rallying to 18,350+.  If this happens, the pattern would be a simple a-b-c pattern for wave ‘b’ instead of the Wedge.  However because of where this wave is occurring in the overall pattern, I have to give this labeling a much lower probability.

Here’s the thing:  The Dean’s List and The Tide are at odds with each other at the moment.  And anytime these indicators are conflicting, it’s usually because the market is in a corrective pattern.  Corrective patterns are continuation patterns, and not the start of change in direction.  I say ‘usually’, because we know that the current wave count is also be part of a topping pattern.  And the final waves of any topping pattern can truncate, meaning that the Dow does not have to reach 18,350+.  But the odds of the pattern truncating right now are low, so I have to remain bullish, even though it appears a decline of 200+ Dow points appears to be in the cards near term..

This is one of the reasons I posted yesterday’s late Comments.  If the DIA breaks 176.42 today, it’s likely that the Hockey Stick pattern in place on the 15 min bars will take over and cause the Dow to trade to the 17,500 level.  However because of yesterday’s late rally, which was also part of a small corrective pattern, it increased the odds that the 17,500 level will hold to complete ‘e’ wave of the Bullish Wedge pattern.

All of the above means that the 17,500 level on the Dow will likely be an important support level for establishing long positions for a final run-up to a top.  So IF the Dow approaches that level in the days ahead, I will be looking to establish a trading position in the DDM.

I will be watching the trend and Money Flow indicators on the 15 min bars.  If they turn positive, I’ll buy a few ‘trial’ positions.  I’ll add to this position IF the 60s turn positive.  Then IF the Tide starts to turn positive, I’ll add a few more.

However, IF the Tide turns positive with the Dow above 17,500, I’m also going to be looking for a few individual stocks to trade from the Honor Roll.  The reason I want to do this is because I want to trade a few key stocks that are already in the Trend Mode.  And for the final move up, this is where I want to be.  I figure that there is likely only about 4-5 weeks left in the rally before the top is in, so it doesn’t leave much time for the majority of stocks to get rolling.

BTW, yesterday I had a chance to look at some of the stocks that Emeritus highlighted for the Honor Roll whenever The Tide changed.  I was very impressed. 

As you know, my primary method for trading ETFs is to wait for a Tide change and then trade index ETFs from the Dean’s List in the direction of The Tide.  So right now, with a negative Tide, I could be shorting the Russell 2K and the S&P500 if I wanted.  But the pattern suggests that this would only be a low probability scalp trade. Remember, with mixed indicators I have to assume that we’re in a corrective pattern, so scalps only!

If I’m right, the better bet would be to wait for lower prices and then start to take ‘trial’ positions near the 17,500 level.  This would enable me to have a strong corrective Wedge Pattern in my favor.

But the best bet still appears to be a mix of a few index ETFs (bought near the 17,500 level) with a few trending stocks.

BTW, even though gold pulled back yesterday, it still looks like it wants to rally a bit more before completing its final leg down.  My near term target for GLD remains at the 107 level, before retesting 99-100.   GLD closed yesterday at 102.67.

Watching.

That’s what I’m doing,

h

Market Signals for

12-08-2015

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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