Professor’s Comments February 23, 2016
Posted by OMS at February 23rd, 2016
The Dow rallied for 229 points, closing at 16,621. Volume was moderate, coming in at 84 percent of its 10-day average. There were 55 new highs and 14 new lows.
Not much changed after yesterday’ action. Yesterday’s strong rally was the Big Move predicted by Thursday’s relatively small change in the A-D oscillator.
It still appears that the rally was part of wave ‘c’ up of Major Wave 2 up which should complete near the 16,700-17,000 level within the next two weeks.
Yesterday’s rally high of 16,664 got within 36 points of my lower target for wave ‘c’ up before prices started to fade. I would expect to see this pullback continue for the next 1-2 days before the rally toward 17,000 resumes.
If you put yesterday’s rally under a microscope, it appeared to be the impulsive wave 3 of a five wave sequence for wave ‘c’ up. If this is the case, then the market should pullback and consolidate during the next few days before moving higher.
The extend to which prices pullback and form a small wave 4 triangle will determine the eventual high for wave ‘c’ up of Major Wave 2 up.
With DIG on the Dean’s List, I continue to trade (scalp) energy.
I’m also watching gold which appears to be consolidating for another move higher. The pattern on gold (the metal) suggests that a move toward the 1150 level is possible. If this happens, GLD could fall to 110 -112. GDX could fall to 16.
But right now there is a disconnect between gold (the metal) and mining stocks with the later being a lot stronger in terms of Money Flow. So IF GDX does pullback along with the market during the next few days, I will start accumulating a few shares.
I would still love to see GDX trade sideways to down during the next 2 weeks to form a longer ‘Blade’. If this happens, gold and mining stocks could be a nice place to be once the market starts its impulsive decline in mid-March.
Right now, gold stocks and energy (DIG) are near the top of a strong Dean’s List. And UUP, the ETF for the U.S. Dollar, is near the bottom.
If you take a close look at UUP, you will see that prices have rallied for the past 7 trading days off the 9 February low. The tiny Hockey Stick pattern that has formed during the past 4 trading days suggests slightly higher prices before the rally completes. The extremely weak Money Flow indicator suggests that once this rally completes, prices will resume their downward slide.
So in the days ahead, look for the dollar to complete its small corrective rally. Then once UUP drops off the Dean’s List and is replaced by UDN, the inverse ETF for the Dollar, it will give me the all clear signal for trading and accumulating gold.
Bottom Line: The next two weeks could be a critical time for making adjustments to your portfolio(s). Whether you are managing your own or other peoples money, start thing about what you’re gonna do once the Dow starts to move above the 16,700 level. At 16,700 or above, the risk-reward for being long equities will start to turn negative. So watch the following:
– IF the Dean’s List and Tide start to turn negative, look to exit equities.
– As long as DIG remains on the List, the environment will remain friendly for energy.
If DUG replaces DIG, look to exit all energy trades.
– If UDN replaces UUP, and gold stocks remain on the Dean’s List, look to buy and hold gold stocks and ETFs.
That’s what I’m doing,
h
Market Signals for
02-23-2016
DMI (DIA) | POS |
DMI (QQQ) | NEG |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
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