Professor’s Comments March 16, 2016

Posted by OMS  at March 16th, 2016

The market was mixed yesterday. The Dow was up 22 points, closing at 17,252.  The NASDAQ, SPX and RUT were down 22, 4, and 18 points respectively. Volume was low again, coming in at 79 percent of its 10-day average.  There were 53 new highs and 11 new lows.

It appears that the market is starting to roll over. The Dow could still push a bit higher as final wave ‘C’ up completes, but the other indexes appear to have topped.

Yesterday the A-D oscillator had a reading of 56.6, which is its lowest reading since 12 February when the current rally started.  Since 16 February, the oscillator has stayed above the 150 level.  So yesterday’s decline to 56.6 is noteworthy.  It could mean that the first breadth indicator in The Tide is about to turn negative. 

Remember, when the A-D oscillator turns negative, it tells us that the majority of stocks on the NYSE are starting to enter down trends.  So coming near the end of an Ending Diagonal Pattern, this indicator needs to be watched.

This is not the time to be buying stocks.  It’s still a bit early to be shorting them aggressively, so I’m still not adding to my ‘trial’ positions.  If one or more of the breadth indicators turns negative, or if the Money Flow indicators turn negative, I’ll buy a few more inverse positions.  But fright now, I’m comfortable with the positions I have.

The low volume, sideways trading we’ve seen for the past few days is likely associated with today’s Fed announcement.  Traders appear to be waiting to see what the Fed will say at 2pm today.  So be careful.  If traders don’t like what the Fed says later this afternoon, it could trigger a wave of impulsive selling.

And unlike the early declines we saw yesterday and last Thursday, the next one could continue lower.  Traders need to be mindful of the lower trend line of the Ending Diagonal Pattern, which is now located just under the 17,050 level.  A break of 17,000 could be another indication that Major Wave 3 down has started.

Gold has been pulling back the past few days, but it’s not clear if the decline is part of small wave 4 within Wave 1 up or if it’s the start of the Wave 2 down Blade.

If it’s a small wave 4 within Wave 1 up, then gold could rally to the 1300 level before pulling back to under 1200 during Wave 2.  If this happens, GLD, which is currently trading just under 118, could rally to the 128 level before Major Wave 1 up completes. 

Traders should note that UDN, the inverse ETF for the U.S. Dollar remains on the Dean’s List.  As long as UDN stays on the List, the environment should be positive for gold and negative for the Dollar.

BTW, the Dollar is currently trading near the 96 level.  The daily chart is telling me that the Dollar could be topping near current levels and the next leg down should be a test of the 80 level.  My longer term projection for the Dollar is below 50, which is about a 50 percent devaluation of the Dollar. Ouch!   This is one of the reasons I continue to look for entry points in gold. 

If you’re holding gold now, or contemplating buying it, you need to think longer term.  Gold appears to have started its Major Wave 5 up.  Once this wave completes, it will likely be trading well above the 2,000 level, possibly closer to 2,400.  But right now, it’s still developing its preliminary waves.  If Wave 1 up has not completed, then gold could rally several points higher before correcting in Wave 2 down.  If Wave 2 down has started, then it could fall several points lower.  In this environment, I’m not really anxious about buying a lot of gold, because even if it does rally, I believe there will be time to buy my gold shares.  So for now, I’m just watching as the pattern develops. 

Waiting for the Fed announcement.

That’s what I’m doing,

h

Market Signals for

03-16-2016

Not sure of the terminology we use? Check out these articles

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

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