Professor’s Comments February 26, 2014

Posted by OMS  at February 26th, 2014

The Dow fell 29 points, closing at 16,179.  Volume was moderate, coming in at 101 percent of its 10 day average.  There were 134 new highs and only 19 new lows.

The A-D oscillator fell back into ‘neutral ’ territory, with a reading of 99.48.  With the overbought conditions of the market now relived, it should allow the next wave up in the wave “c” sequence to begin at any time. The only question now is how far up will it go.

Also remember that we still have a ‘small change’ signal from Monday’s A-D oscillator on the board. The signal for a potential Big Move is good for 2 days.

Basically there are two scenarios still on the board.  The first has to do mostly with the mixed trading action of the past 6 days that has produced anything but a clear pattern.  As you know, I would have liked to see the Dow take some time and pull back to the 15,900+ level.  This would have developed a nice ‘Blade’ for the Dow to push substantially higher, possibly toward 17,000.

However so far, the low for the Dow during the current consolidation phase has been 16,006.  And therein lies the problem.  If the Dow starts to move beyond 16,300 without an adequate base in terms of price and time, then the odds only favor a move under the 31 December high of 16,588.  I’m going to say closer to 16,450.

On the other hand, IF the Dow stays between 15,900 and 16,300 for the next 1-2 weeks, the odds shift in favor of higher prices, with 16,900 possible.

At the present time, there is no trend going on with the Dow and SPX.

The Dean’s List remains positive and the PT indicators are mixed.

All of my breadth indicators remain positive, so the odds favor higher prices once the current consolidation pattern completes.

The only real problem I see at the moment has to do with volume as the market continues to push higher.  It’s just not there.  Now this doesn’t mean that the markets can’t continue to move higher.  They can and probably will.  But the negative divergence I’m seeing in just about all of my volume indicators is telling me to be careful.

Yesterday we saw some of the energy issues pull back a little as they have gotten ahead of themselves.  The price of crude oil fell slightly, pulling OIL, the crude oil ETF back toward the moving averages.  Crude is at a very interesting point now, as the 50 is very close to crossing above the 200 which would put the ETF back into an uptrend.  If this starts to happen, I would feel a lot better about all of the energy issues I follow, especially going into the March-April time period.  The thing I want to see happen now with OIL is for it to continue to pullback and form a nice ‘Blade’ above the moving averages.This would set the stage for the higher crude prices that I anticipate in the months ahead.

TMF, the 20+year Bond ETF also had a nice pop yesterday.  The ETF continues to form a nice ‘Blade’ after a TLB Pattern and a ‘Rope Jump’.  But even with yesterday’s 1.33 point pop, TMF remains below its 200 day moving average.  This tells me that it still has a lot of work to do before it can move into an Uptrend.  We’ll need to be patient with TMF.

BTW, If the overall market continues to rise as I expect, traders and investors will likely continue to favor equities over bonds.  So one of the reasons I want to watch Bonds now is to keep track of the money flow.  If TMF and TLT start to rise above the 200 and move into an Uptrend, it’s a good bet that the equity market is approaching its top.

Along these same lines, another ETF that will give you a clue as to what is happening in the equity markets will be EEV, the inverse Emerging Market ETF.

Right now, EEV is in a downtrend as most of the world markets continue to rise.  As long as EEV remains in a down trend, with its 50 below the 200, I wouldn’t worry too much about things going south in Europe and Asia.  However IF EEV starts to move higher, it would tell me that the problems I foresee in the charts of many European and Asian countries are beginning.  With the Emerging Markets being completely dependent on the economies and markets of the rest of the world, they will be the first to react.  So by watching one chart…EEV, it saves me a lot of time.

Also, EEV has also formed a TLB pattern with a recent ‘Rope Jump’.  It has been forming a pullback  ‘Blade’ for the past month.  The next few weeks will be very telling for the ETF as it does its work.  It will also tell us a lot about what the world markets will be likely be doing in the future.

Watching.

That’s what I’m doing.

h

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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