Professor’s Comments June 29, 2016

Posted by OMS  at June 29th, 2016

The Dow rose 269 points, closing at 17,410.  Volume was moderate, coming in at 108 percent of its 10-day average.  There were 181 new highs and 29 new lows.

Yesterday’s strong rally came on the heels of a new VIX Buy Signal.  The rally appeared to be part of a corrective within Major Wave 3 down.  Like I mentioned yesterday, this corrective wave should take a few days to complete before Major Wave 3 down resumes.

The reason I have to assume that yesterday’s wave was corrective is because of Monday’s decline broke through the 19 May low of 17,331.  It also caused the Dow to close below its 200-day moving average which is currently located at 17,406.

So now the Dow will likely spend a few days re-testing its relationship with the 200.  And while it does, the trading action should form the ‘Blade’ of a negative Hockey Stick Pattern. Once this pattern is complete, the negative Hockey Stick Pattern that forms should enable prices to fall toward the February lows.

Yesterday Dave modified the software for the VTI indicator, adding two additional selection possibilities to the indicator. So now I will not only be able to show when the indicator changes direction, I can show you when it’s trending. Besides being Red or Green, the VTI indicator will now have the word Trend added. This should help students in their decision to hold positions.

As most of you know by now, when the market is not in the Trend Mode, I tend to scalp trade, taking profits when they are available.  But once the market starts to enter the Trend Mode, I like to leave some of my positions on, hoping to take advantage of the developing trend.  This is where the trend feature of the VTI can help.

For example, in last weekend’s WSR, Emeritus identified five stocks as shorts for the Honor Roll.  All of them did well the following day as scalps.  But the fact that the VTI was NOT in the Trend Mode told me to close out the trades by the end of the day.

The following day, (yesterday), we saw the market spring back from extreme oversold conditions. All of the stocks highlighted on the Honor Roll came roaring back along with the market.   Most of them recovered about half of the loss they had the previous day. 

So far this year there have been two times when the VTI went into the Trend Mode.  The most recent was the period from 3 March to 5 May when the market was in an Uptrend.  During this time, it would have been very beneficial to hold stocks that were purchased from the Honor Roll.  Same for the period from 6 January to 1 February, when the VTI signaled a down trend. During this period, it was beneficial to be holding shorts from the Honor Roll. 

So now, besides having an indicator that will help identify times when it might be a good time to trade Honor Roll stocks, the VTI will also help with decisions to hold them.  This should be of significant value to students who want to establish positions for longer time periods.

Adding this new Trend feature to the VTI should also help students in another way.  This is because there are many times when the market has entered the Trend Mode, but for whatever reason, the student did not trade Honor Roll stocks on the initial VTI change.  So he’s on the sidelines watching those stocks move higher (or lower for shorts).  If he knows that the VTI is in the Trend Mode, he can still look for stocks form the Honor Roll knowing that Emeritus is a trend algorithm that tries to identify stocks that could be ready to trend. So even if he missed the initial VTI change, he will have new opportunities to place trades in a trending market.

Last night, Emeritus did not have any trades for the Honor Roll.  This tells me that the market has likely entered a corrective mode.  And when the market corrects, I like to be on the sidelines.

Also, the market is now in the Bullish end-of-month time period when the Mutual Funds are re-balancing their portfolios. This should push the markets a bit higher.

Yesterday the 2-period RSI Wilder on the Dow closed with a reading of 51.26.  If the RSI can move above the 70 level today, I’ll start looking to establish a few short positions in inverse index ETFs.  I’ll also be taking another look at the five stocks that Emeritus identified as shorts during the weekend. 

That’s what I’m doing.

h

Market Signals for

06-29-2016

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
FAQ

All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.