Professor’s Comments May 11, 2016

Posted by OMS  at May 11th, 2016

The Dow rose 222 points, closing at 17,928.  Volume was low, coming in at 89 percent of its 10-day average.  There were 251 new highs and 25 new lows.

Yesterday’s rally was the Big Move predicted by the small change in the A-D oscillator.  The rally reached my projected target high (17,900) for the right shoulder of the Head & Shoulders sub-pattern within the Rounding Top. So now that this high is in, prices need to start falling soon.

Here’s the thing:  Yesterday’s rally turned the Dean’s List back to positive.  It also turned the DMI on the Dow(DIA) positive.  So IF the H&S Pattern is NOT forming, it’s possible that the decline that occurred over the past few weeks is only wave 4 of the Ending Diagonal Pattern for Wave 2 up.  This would mean that yesterday’s rally was the start of wave 5 up, which could retest the 20 April high of 18,168 before it completes. 

I do not believe this is happening, but it’s possible.  Right now The Tide is still neutral, so it continues to support the H&S scenario.  However, if the market continues to rally and The Tide turns positive, the wave 5 retest would become my primary scenario.

Another reason I don’t believe a new rally wave is starting is because when I ran The Professor last night, he only had 41 longs.  This is still short of the 50 longs that usually marks the start of a new rally leg.

So for now, I’m just going to watch and see what happens.  Late yesterday with the Dow near its high of 17,928, I did establish a small ‘trial’ position in DXD, the inverse ETF for the Dow.  If the Dow starts to fall impulsively today, I’ll look to add to that position.  Otherwise I’ll wait until the indicators turn negative again before doing anything more to the downside.

BTW, a break of 17,500 now would confirm that Major Wave 3 down is underway.  I thought I would mention this today because now that the Dow has hit the 17,900 level, IF it breaks 17,500, it could fall to the 15,000 level or lower. 

So If you’re tempted to trade the upside now, please consider the potential upside reward vs. the downside risk.  That 15,000 level was no typo.

That’s what I’m doing,

h

Market Signals for

05-11-2016

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