Professor’s Comments March 11, 2016

Posted by OMS  at March 11th, 2016

The Dow fell 5 points, closing at 16,995.  Volume was moderate, coming in at 93 percent of its 10-day average.  There were 79 new highs and 13 new lows.

Once again, even though the Dow had a wild intraday swing of over 300 points, there wasn’t any change to the cockpit indicators.  It still appears that the Dow is developing the final waves to a top that should complete near the 17,200 level.

Yesterday’s high reached 17,130, only 20 points from the bottom of the range that I have been using for the theoretical top of wave C of Major Wave 2 up.  So it’s possible that the top is already in.

But I doubt it. 

That’s because none of the cockpit indicators have turned negative.

The Dean’s List and Tide are still very strong, as are the two Money Flow indicators.   

So as long as these indicators remain positive, it’s likely that the market will chop higher to complete the final ‘through over’ rally.

This is NOT the time to be buying stocks. It’s time to be managing money.  With the Dow now at the 17,000 level, the reward-risk ratio no longer favors the upside.

If the Dow retests yesterday’s high of 17,130 and approaches the 17,200 level, I will start looking to establish an initial position in inverse index ETFs near that level. 

As I discussed yesterday, I believe the reward-risk odds for a decline using 17,000 as a base are over 8:1 in my favor.  At 17,200, the odds are even higher.

So even if I’m wrong about 17,200 and the Dow pushed beyond this level in its final ‘through over’ rally, I’m willing to take the risk and hold an initial short position from that level.

Yesterday’s early decline in the Dow showed how quickly a decline could develop.  For awhile, it appeared that the early decline would not stop.  It scared a lot of traders.

But the pattern suggested that one more final rally leg was needed to complete the Ending Diagonal, and even though the Dow fell to 16,822 which is below the lower trend line of the Ending Diagonal, the ensuing rally driven by short covering caused the Dow to finish unchanged.  This is not uncommon.

Remember, as I said above, a lot of traders are starting to get short now.  They see the pattern.  And many of them have started to establish their initial positions.

Yesterday once the Dow broke through the lower trend line of the Ending Diagonal, many traders wrongly started shorting stocks.  They weren’t thinking about the ‘through over’ wave.  So once the selling stopped, they had to cover their positions driving the market higher.

Expect this to continue early today.

But start looking for entry points for a few trial short positions if the Dow starts to move back above yesterday’s high.

That’s what I’m doing,

h

Market Signals for

03-11-2016

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.