Professor’s Comments March 2, 2016
Posted by OMS at March 2nd, 2016
highs and 24 new lows.
Yesterday’s impulsive rally was likely most of wave 3 up within the Ending Diagonal pattern for wave ‘c’ up of Major Wave 2 up. It was expected.
Wave 3s within an Ending Diagonal pattern are by far the easiest waves to predict. The Hickey Stick pattern that I posted in the WSR provided all the energy required to push the Dow to the 16,866 level.
But now things will start to get tricky. That’s because at 16,866, the Dow is only 134 points from its theoretical target of 17,000. And several things can happen now before that target is reached.
The first is that the market could make a small minor wave 4 type pullback within wave 3 up. If this happens, the market could pullback today and then rally to get closer to 17,000 later this week.
The second is that a larger degree wave 4 correction, or the fourth wave within the Ending Diagonal, could begin today and last for several days before wave 5 up tests the 17,000 level. This test could be a ‘through over’ wave that takes the Dow 100-200 points above 17,000. Like I said last week, the odds for this happening are only about 30 -50 percent.
The final thing that could happen is that the pattern could truncate. If this happens, then yesterday’s high was the top of Major Wave 2 up and everything that happens now will be part of Major Wave 3 down.
There is no way to tell.
The thing to realize now is the all of the easy money within the Ending Diagonal pattern has been made. The final moves within the Ending Diagonal are always fraught with risk. So manage your money accordingly.
Several weeks ago, when the current rally was just starting, I mentioned that the reward-risk for a move higher were over 8:1. But after yesterday’s rally, the reward-risk odds to keep me in this market are no longer favorable. So late yesterday, I was selling into the rally.
I figured that after the impulse wave, the best the market can do is have two choppy waves (wave 4 down and 5 up) that have a potential gain of another 200-300 Dow points.
On the other hand, if the Ending Diagonal pattern decides to truncate, then there will be no gain. Only a decline to the 15,400 level or more. So after yesterday’s rally, I have to adjust the reward-risk odds for a rally of 200 points to about 7:1 negative. You can have those odds. They’re not for me.
But I’m NOT going to start trading the downside yet. I want to see both Coaches on the cockpit start to turn negative. These Money Flow indicators started to diverge negatively during yesterday’s rally. They’re still positive but they didn’t get as high as they should have for a 350-point gain. The divergence tells me that the pattern has started to weaken.
So for the next few days, I’m just going to watch from the sideline and see how the final waves of the pattern play out.
Remember, you don’t have to be in the market all of the time. And when faced with less than favorable odds and a possible wave 4, it’s usually best to move to the sidelines.
That’s what I’m doing,
h
Market Signals for
03-02-2016
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | POS |
SUM IND | POS |
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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Category: Professor's Comments