Professor’s Comments February 27, 2014

Posted by OMS  at February 27th, 2014

The Dow rose 18 points, closing at 16,198.  Volume was moderate, coming in at 109 percent of its 10 day average.  There were 177 new highs and 22 new lows.

The A-D had another ‘small change’ reading last night, with a difference of only 6 points from the previous day’s reading.  During the past 7 trading days, there have been four ‘small change’ readings associated with several large intraday moves, yet the markets have not gone anywhere.  This consolidation is very Bullish for the short term.

But the question is how Bullish, and how long will it last?  Hmmm?

Yesterday, I talked about two scenarios for the Dow.  I said IF the market starts to break out of current levels, then it’s likely that the current Bullishness will only take the Dow back up to the 16,450+ level.  The point is that it should not make a new high.

The second scenario would have the current consolidation period last another week or so. This would give the markets an opportunity to form a longer ‘Blade’ which would support a move beyond 16,588, possibly closer to 17,000.

But after yesterday’s ‘small change’ reading, the odds have shifted to the former scenario.

This is because the gun is now loaded!   Even though yesterday’s trading action only moved the Dow 18 points, the internals were very Bullish.  They should have produced a move closer to 70 – 80 points higher.  But it didn’t happen.  So once again the stage Is set for another Big Move within the next 1-2 days. The problem is that the Big Move could be either up or down.

The Dow is currently trading just under 16,200.  It could easily trade down to the 15,900+ level in the current pattern.  On the other hand, without any help, the Dow could easily pop 200 points from current levels, just based on the pattern alone.  So short-term traders should be mindful of the ‘small change’ signal from the A-D oscillator and be on the lookout for a Big Move in either direction.

Also, no matter what the market does over the next day or so, any down move will have to fight the normally Bullish end of month time period, This should help contain the move within the current consolidation pattern.  So IF any down move is to be contained, and any up move likely to be a breakout, it appears that 16,450 is a better than even money bet.  However anything beyond 16,588 is starting to look problematic at this point.

One of the reasons I say this is because March is a month of shifting sands.  In the past, too many market reversals have occurred in March for me to treat the pattern as random.  So as the soothsayer told Caesar after studying the entrails of some goat; “beware the Ides of March”,  when I look at those Red numbers on the cockpit for Money Flow (Coach), and the high number of market reversals that have occurred in mid-March, I too get concerned.

Anyhow, the Ides are still a few weeks off, and I want to see IF and how the market moves higher in the next week or so.  The next move should give us a lot more information about the future direction of the markets. But sometimes it still feels a lot like reading goat entrails :>).

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
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