Professor’s Comments February 25, 2016

Posted by OMS  at February 25th, 2016

The Dow fell over 260 points early in the session before recovering to finish up 53 points at16, 485.  Volume was moderate, coming in at 97 percent of its 10-day average.  There were 46 new highs and 73 new lows.

Yesterday’s early decline dropped the Dow to the 16,166 level.  In yesterday’s Comments, I talked about a scenario where the Dow could fall to 16,300 to form wave 2 of an Ending Diagonal Pattern before rallying toward 17,000.  This appears to be what happened yesterday only the Dow fell a little lower (16,166) than I expected.  Doesn’t matter.  It still should be wave 2 of a five wave sequence that will take the Dow back to the 17,000 level.

One of the things that makes me feel pretty confident about this scenario is how the market reacted yesterday.  After the initial decline, the Dow rallied to form a “Hammer’ Candlestick.  A ‘Hammer’ has a small top with a large tail or handle.  This type of candlestick is often seen at significant bottoms.  It is the perfect candlestick to start the next leg up of the Ending Diagonal Pattern.

So yesterday with the Dow down over 250 points, I started buying a few DDMs.  And like I said yesterday, I will continue to buy and hold these positive leveraged ETFs for a move back above 16,700. 

If I’m right about the Ending Diagonal, the rally that started from 16,166 should be the impulsive wave 3 within the pattern. It should take the Dow above Monday’s high of 16 664 but under 17,000.  Then once wave 3 up completes, there should be a small pullback for wave 4 before final wave 5 up tests the 17,000 level. I’m still looking for the move to be completed by mid-March. So just like the soothsayer told Caesar, I’m telling you to “Beware the Ides!” That’s what the current pattern suggests.

Right now the Money Flow indicators on the NYSE are very strong, so larger cap stocks should have an easier go of it than others on the NASDAQ and Russell 2K.  The thing to watch will be the Money Flow indicators.  As long as both Coaches on the cockpit (the Money Flow indicators) remain positive, I believe stocks will continue to move higher.  However once those indicators turn negative, it should be the first sign that a Major top is approaching and time to exit my position trades.  

Yesterday’s early pullback drove the 2 period RSI Wilder deep into oversold territory on most energy stocks.  Hmmm?  Green indicators with an oversold RSI coming at a point in the pattern that appears to be consolidation wave 2?  And with DIG near the top of the Dean’s List….they sure looked like a buy to me.

Like I said a few days ago, as long as energy stocks continue to form their Wave 2 Blades, I will continue to scalp them on the shorter-term bars.  However, IF they start to break out of these Blades, that’s when I’ll start holding them overnight.

BTW, if you get a chance today, you might want to take a quick look at the Money Flow indicator on Gulfport (GPOR).  It’s telling me that someone is starting to accumulate the shares.  Same for SLB and EQT.  Hmmm?

That’s what I’m doing,

h

Market Signals for

02-25-2016

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
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