Professor’s Comments February 5, 2016

Posted by OMS  at February 5th, 2016

The Dow rose 80 points, closing at 16,417.  Volume was heavy, coming in at 111 percent of its 10-day average.  There were 54 new highs and 68 new lows.

Not much changed with yesterday’s rally.  It still appears that yesterday’s action was part of a corrective wave 2 within Major Wave 2 up.

As I mentioned in yesterday’s 2.40 Update, the wave count on the 10 min bars of the Dow clearly show five waves up from Wednesday’s low into yesterday’s high. And since that high, the Dow has pulled back in an a-b-c retracement.

So IF I’m correct about the wave count, wave 3 up should start as soon as the current retracement wave completes. It could start today, but that would be too simple.

The other possibility is that the current wave forms a more complex structure, like a triangle.  If this happens, then the Dow could rally today and then pull back before the final rally towards 17,000 begins.

In either case, I will be looking to buy a few DDMs if the indicators give say so.

BTW, I’m mostly trading the indexes now. I’m watching the DIA and then trading (scalping) the DDM or DXD depending on what the underlying index is doing. I’m doing this is because I really don’t want to be fooling with individual stocks now. If the Dow is moving up towards what appears to be a Major Wave 2 top, many stocks will not participate in this rally. This is very evident if you look at and compare the performance of the Dow with the NASDAQ and the Russell 2K. Right now, the Dow is the strongest index with the clearest pattern. And anytime I see clear patterns, I look to trade those patterns. I always try to put the odds in my favor.

The Tide and the Money Flow indicators remain positive and the Dean’s List remains negative.  So the signals on the cockpit remain mixed.  Mixed signals are usually a sign that the market is in some type of corrective wave.

However, because yesterday’s early trading action completed five waves to the upside, I need to put more weight on the Major Wave 2 scenario.  Anytime I see five waves moving up, it tells me that the primary trend is up and not down.  So I have to look for a pattern(s) that supports a move higher, thus the Major Wave 2 scenario.

Gold had a nice pop yesterday, pushing shares of GDX to 16.15 where they easily ‘Jumped the Ropes’.  So now the second part of the turn-around process is complete.   Anytime I see a stock move above its 200 day moving average after a TLB Pattern, I have to label it as a possible wave 1 in a new Bullish wave sequence.  So in the days ahead, I will start to watch gold very closely. 

The thing I’ll be looking for is a two wave pullback which would identify the pullback as a minor wave 2.  If this starts to happen, I will start buying a few gold shares again on the pullback, only this time I will start accumulating them.  Remember, most gold stocks are still in a downtrend with the 50 day moving average well below the 200.  In order for gold stocks to move into an Uptrend, it’s going to take some time to first move the 50 closer to the 200 and then eventually cross the 200.  And a lot can happen before this process is complete.

The reason I’m still cautious about gold is because the major pattern still allows for one more significant pullback to complete.   So right now, the ‘Rope Jump’ has me interested in gold, but I need to see if the pullback is a minor wave 2 (very Bullish) or something more substantial.

That’s what I’m doing,

h

Market Signals for

02-05-2016

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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