Professor’s Comments March 22, 2016

Posted by OMS  at March 22nd, 2016

Stocks were mixed again yesterday.  The Dow was up 22 points, closing at 17,624.  The Russell 2K (RUT) was down 3 points to 1,099.  Volume was low again, coming in at 87 percent of its 10-day average.  There were 56 new highs and 6 new lows.

Even though the Dow continues to push higher in what appears to be the final ‘through over’ wave in an Ending Diagonal Pattern, the breath indicators continue to show negative divergence.  And when these divergences are supported by mixed markets and low volume, it is usually a sign that a top is near.

A significant down turn could start at any time now.  However, as I mentioned several days ago, there is no way to tell exactly where the current ‘through over’ wave in the Dow will end.  All we know is that the top is close.  The next downturn could start in a few days, or the Dow could have topped yesterday. The five waves in the Ending Diagonal Pattern are all in, so all I’m waiting for now is an impulsive wave down that would signal the start of Major Wave 3 down.

The other things I’m watching now are the Money Flow indicators on the cockpit and The Tide.  Since The Tide turned positive on 16 February, the Dow is up 1,432 points.  Like I always say, Follow The Tide.

One other indicator I’m watching now is the VIX.  For the past three days it has closed very near its lower Bollinger Band.  Last Thursday, the VIX actually fell below its lower Band, but closed above it.  So a ‘normal’ VIX Sell Signal set-up was not generated. 

For a ‘normal’ VIX Sell Set-up to be generated, the VIX must close below its lower Bollinger Band.  Then when it closes back above the lower Band, the actual Sell Signal is generated.   However, the current market is far from being ‘normal’ as evidenced by the ‘through over’ wave in the Dow, which only occurs about 30-40 percent of the time. So I would not be surprised if last Thursday’s intraday drop below the lower Band and close above was an intraday VIX Sell Signal.

We should know soon enough.  Again, I’m looking for an impulsive move down that will turn the cockpit indicators negative. 

Once this happens, I will start shorting the market aggressively.

Gold continued to pull back yesterday with GLD dropping 0.84 cents to 118.96.   Gold , the metal, got as low as 1,242.  At this point I’m still not sure if the pullback is a wave 4 within wave 1 up or part of the wave 2 pullback.

If it’s a wave 4, then gold could still rally to the 1,300 level before pulling back to under 1,200 in wave 2.  So the reward-risk odds are about even at this point.  The PT indicators on GLD remain positive, but the Money Flow indicators have turned negative, so I’m not interested in accumulating shares now.  IF the Money Flow indicators turn positive, GLD could make a run at the 128-129 level.  But right now, I’m just going to wait.  I don’t like trading stocks with even odds.

That’s what I’m doing,

h

Market Signals for

03-22-2016

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The Hockey Stick Pattern
The Creation of Waves and Trends
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