Professor’s Comments June 2, 2016
Posted by OMS at June 2nd, 2016
The Dow fell over 120 points early and then rallied to close up 2 points at 17,790. Volume was moderate, coming in at 100 percent of its 10-day average. There were 116 new highs and only 7 new lows.
Yesterday’s early decline was the Big Move predicted by the small change in the A-D oscillator. So now the last seven small change signals have produced moves of over 100 points in the Dow within 2 days of the signal. Pretty impressive!
With stocks finishing flat, there weren’t a lot of changes to the cockpit indicators. The one change I noticed was the that the DMI on the Dow (DIA) turned negative. However, when I ran The Professor algorithm last night, there were only 7 stocks highlighted as shorts. So it’s likely that the negative DMI turn on the Dow(DIA) will turn out to be a false alarm.
The overall pattern still suggests that once the current pullback completes, stocks will resume their upward course, retesting the 20 April high. If this happens, final wave ‘C’ up of Major Wave 2 up should complete near or above the 18,168 level. If this does not happen and wave ‘C’ up truncates, it would be very negative for the markets.
The Tide and the Dean’s List remain positive. So yesterday with the Dow down over 100 points early, I bought a few DDMs. I also bought a few shares of Devon Energy, DVN, which was highlighted by Emeritus for the Honor Roll. Both turned out to be very nice scalp trades.
I mentioned DDM in yesterday’s Comments because going into yesterday’s trading, the Dow was approaching oversold territory with a reading of 37.17 on the 2-period RSI Wilder. So when the Dow fell over 100 points early causing the 2-period RSI Wilder to fall deep into oversold territory, I bought my ‘trial’ positions.
Remember, right now there is NO Trend in place. My Volume Trend Indicator (VTI) is only showing a reading of 58.33. So while readings above 50 indicate a positive bias to the market, this reading is still far short of the 70 level which would indicate that a Trend has started.
It was the same story for the 35-period CCI indicator. This trend indicator had a neutral reading of 7.81 going into yesterday’s trading.
So with NO Trend in place, the indicator of choice is the one that tells us when a stock is overbought or oversold. That’s the job of the 2-period RSI Wilder.
It did a very nice job yesterday. If the Dow pulls back early today, I will continue to look for times where the 2-period RSI Wilder on the Dow is oversold, identifying trading opportunities in the DDM.
If you take a close look at a chart of the Dow, you will see that a small Hockey Stick pattern has developed since the Dow bottomed on 19 May. The recent pullback has formed the “Blade’ of this HS pattern. So once this ‘Blading’ process is complete, maybe today or tomorrow, the Dow should resume its upward course to re-test 18,168. That’s what should happen. If it doesn’t and prices start falling below 17,485, this market is headed for trouble.
Also remember that the BLS will be releasing the May Jobs Report numbers at 8:30 tomorrow morning. This could cause a significant move in the markets. Be careful with your trading positions in front of the Jobs Report number.
That’s what I’m doing,
h
Market Signals for
06-02-2016
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
SUM IND | POS |
One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE
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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Category: Professor's Comments