Professor’s Comments March 8, 2016

Posted by OMS  at March 8th, 2016

The Dow rose 67 points, closing at 17,074.  Volume was moderate, coming in at 107 percent of its 10-day average.  There were 53 new highs and 4 new lows.

Not much changed with yesterday’s trading.  It still appears that yesterday’s rally was part of wave 3 up within the Ending Diagonal for wave ‘C’ of Major Wave 2 up

If this is the case, then the market should start to decline from current levels, probably about 100-200 points, and then have a final rally before it tops near 17,100.

The alternate is that yesterday’s high of 17,099 was the completion of Major Wave 2 up and that the Major Wave 3 decline will start from that level.  At this point, there is no way to tell. However the overall pattern suggests that the Dow should be very close to a top.

I was hoping that the Money Flow indicators would provide us with an early warning of the pending decline.  But right now, both Coaches are still positive. There is negative divergence on the NASDAQ (QQQ), so I have to favor the wave 4 and 5 scenario.  If the market starts to decline today, I would expect the Money Flow indicators to turn negative during the wave 4 and then stay negative during the final wave 5 rally.  This would be ideal.

But we know that the market almost never gives us ideal conditions.  So we need to pay attention to the clues it does give us.

The one major clue I’m looking for is a significant impulsive decline.  Remember, Major Wave 2 is nearing completion, so we need to be watching for a Major impulsive move down. A Major Wave 3 down is always a move of significance.  These impulsive waves do not start with wimpy moves.  They start with bold, impulsive declines. So this is the clue that I’ll be looking for today.

This impulsive move down is usually aided by a small change in the A-D oscillator.  Hmmm?  There was a small change in the A-D oscillator on Friday, and another very small change last night.  So now there are two small change signals on the Board, the last of which was less than a point! 

Also, these small change signals are coming at a time when the A-D oscillator is producing EXTREMELY overbought readings. The last 4 days have produced readings near or above 300.  Folks, you have to go back a loooong way before you see EXTREME overbought readings like that.  So at the very least, the market should start to pull back to relieve these overbought conditions. 

Whenever there is a small change signal on the Board, we need to be on the lookout for a Big Move.  When there are two small change signals on the Board and the market is at EXTREME overbought conditions and very close to Major Wave 2 top marked by an Ending Diagonal Pattern, you MUST pay attention.

This is NOT the time to be buying stocks.  The reward-risk odds simply do not justify putting money at risk.

I’m on the sidelines watching to see how the decline I expect today starts to take shape.  If the decline is impulsive, then it’s likely that Major wave 3 down is starting.  However, IF the Dow drops about 150-175 points and then starts a choppy rally, it’s likely that wave 4 of the Ending Diagonal is developing. This would mean that once wave 4 completes, there will be a final wave 5 rally to a final top.  But the clock is running, and I’m expecting this final top to be in within the next week or so.  So trading the final waves could get a little crazy. 

On the other hand, IF the decline is more than 250-300 Dow points, it’s likely that Major Wave 3 down is underway.  Please respect the potential impact of this wave.  It can easily retest the 15,300 level, with even lower levels likely.

I’ll have more on the eventual targets for Major Wave 3 down in the days ahead.  But for now, please protect yourself.

That’s what I’m doing,

h 

Market Signals for

03-08-2016

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

The Hockey Stick Pattern
The Creation of Waves and Trends
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