Professor’s Comments January 20, 2016

Posted by OMS  at January 20th, 2016

After an initial pop at the open to 16,171, the Dow fell to 15,900 and then rallied into the close to finish up 27 points at 16,016.  Volume was moderate, coming in at 102 percent of its 10-day moving average.  There were 10 new highs and 704 new lows.

In Monday’s Comments, I talked about a scenario where the Dow would likely rally to the 16,150 level before falling back towards 15,800. That scenario appears to be happening now as minor wave 3 down appears to be completing.

After shorting the Dow from above 16,150 yesterday, I started to take profits when the Dow approached 15,900.  The reason did this was because I could see that the A-D oscillator was going to close with a small change.  Small changes in the A-D oscillator usually produce a Big Move within 1-2 days.  And with the Dow near the 15,900 and a 15,800 target for where wave 3 down might complete, I decided to book a nice profit and head for the sidelines.

Remember, my current wave mapping calls for a minor wave 4 rally to about 16,400+, possibly even 16,600 from the 15,800 level once wave 3 down completes.  So if the Dow declines early today and approaches 15,800 or below, I will start looking for the wave 4 rally.  I don’t want to get too cute trading this potential rally, because anything I do now will be counter to the Dean’s List and The Tide. 

Probably the best play will be to wait this rally out and look to short the Dow again from higher levels.  Remember, IF the Dow does rally from lower levels, the wave count calls for a wave 4.  And we all know how volatile and unpredictable these waves can be.  So please use caution.  A wave 4 means that I’m back to using my scalp trading tactics.  I’m expecting the rally to last about two weeks before a re-test of the August lows begins.

One of the stocks I’ll be looking to scalp to the long side is Hershey (HSY).  As most of you know, HSY is a stock that I love to trade in February. It has a long history of making nice rallies as Valentine’s Day approaches.

One of the things I like about the stock now is that it has a nice TLB pattern.  It also has a positive Money Flow indicator that is showing positive divergence. The moving averages are several points above current prices, so IF the Dow decides to put in a wave 3 bottom during the next day or so, I would not be surprised to see HSY lead the market higher during the next rally wave.  It could be a nice vehicle for scalp trades.

All I‘ll be doing is using my three timing indicators on the shorter term bars.  I have found that using the 10 minute bars is a good compromise between the 5s and 15s for scalping.  There’s really not that much difference, but I like how the Chaikin acts on the 10s better than the 5s.  There’s less error on gap openings which can be a problem with the indicator as it weighs the money flow at the end of the bar.  So a slightly longer time period after a gap open tends to produce a more accurate picture of Money Flow.

I usually don’t trade opening gaps, so it makes little difference to me.  But the next time you see a stock gap higher with a negative Chaikin reading, watch to see where the stock closed within the bar.  If it closed near its low, now you’ll know why the Money Flow did not support the rapid advance in prices.  This could be a good thing, because it serves as a cautionary flag against pullbacks that often occur after a gap opening.  And it can happen with either an up or down gap opening. 

So this is one of the things I’ll be looking for with HSY today.  If the market opens down, watch the Money Flow indicators.  Looking for positive divergence on the stocks you want to scalp.  Then IF you see positive divergence…you MUST see this divergence, then and only then should you start focusing on the Fast Stochastic and the Aroon.  Again, no divergence; NO TRADE!

Remember, I’m expecting wave 3 down to complete near or slightly below the 15,800 level. The next rally leg should be anywhere between 600 and 800 Dow points.  But it should also be EXTREMELY volatile.  So any long trades now will be countertrend scalps.  Keep these trades small, take profits quickly, and be out by the end of the day. 

That’s what I’m doing,

h

Market Signals for

01-20-2016

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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