Professor’s Comments May 19, 2017
Posted by OMS at May 19th, 2017
The Dow rose about 150 points early, then gave back over half the gain to close up 54 points at 20,663. Volume was heavy for the second consecutive day, coming in at 119 percent of its 10-day average. There were 38 new highs and 78 new lows.
At yesterday’s low, the Dow touched 20,553, which is about 50 points above the lower support trend line of the sideways triangle I have been talking about for the past few weeks. So, it’s possible that wave ‘C’ down completed yesterday at the 20,553 level.
It’s possible, but not likely. That’s because Wednesday’s decline was 373 points, so the fact that the Dow could not gain back and hold a good portion of that decline makes yesterday’s session look like a classic ‘Dead Cat Bounce’. In other words, the odds favor additional decline over the short term.
The thing students should note about yesterday’s session was shape of the move. The fact that the Dow rose early and fell late, could have been sub-waves ‘a’ and ‘b’ of the middle wave of ‘C’ down. If this is the case, the Dow could rally early today before falling again to re-test the 20,500 level.
If that re-test holds, it could be the completion of wave ‘C’ down, and the next wave up (wave ‘D’ up) should start. If 20,500 doesn’t hold, it’s likely the Zig-Zag pattern I talked about yesterday will come into play. The Zig-Zag could drop the Dow to the 20,100 level.
Nothing about any of this would change the overall triangle pattern. I still expect the pattern to complete in mid-June. After that, the Dow should start its final rally to a top, completing sometime in September-October near or above the 22,000 level.
BTW, going into yesterday’s session, the 2-period RSI was showing a reading of 5.39. It was EXTREMELY oversold. So, knowing that Wednesday’s decline on the Dow and SPX was likely part of wave ‘C’ down inside a triangle, where No Trend is in place, we expected the Dow to bounce from those oversold conditions. And that’s exactly what happened. But AFTER yesterday’s trading completed, the 2-period RSI only had a reading of 26.05, so the Dow is STILL oversold.
In other words, another bounce is likely today. And because yesterday was likely sub-wave ‘a’ and ‘b’, any bounce today would likely be sub-wave ‘c’ within wave ‘C’ down.
Bottom Line: IF the Dow gives us an early bounce, I’ll be looking to fade the rally for another re-test of the 20,500 level. I’m not gonna get aggressive with this trade, because of its low probability and the fact that the market is Not Trending. So, I’m only looking at this as a scalp trade only. I’ll be out by the end of the day. Also, I’ll mostly focusing on the Russell 2K now.
Yesterday the RUT fell to a low of 1,351 before closing at 1,361. So IF it’s starting its Major Wave 1 decline to its 200-day moving average support near 1,322, its less than half way to the target. Remember, IF the RUT topped on 26 April and is starting Wave 1 down of a Major Bear Market, there should be a lot more ‘juice’ in this lemon. As a minimum, this leg down should perform a ‘Rope Jump’, so a move below 1,322 is likely. Again, this all assumes that the RUT topped on 26 April and is now starting Wave 1 down. A ‘Rope Jump’ would tend to confirm this analysis.
Yesterday I talked about how the 2-period RSI on GLD was temporarily overbought (RSI at 99.3) and would likely pull back. It did. GLD fell 0.98 cents, closing at 118.81. The 2-period RSI fell to 56.2, so it’s back to neutral. GLD is now resting slightly above its 50-day moving average support with the 50 above the 200. The key word in the last sentence is ‘resting’. During the past 8 trading sessions, GLD had moved from a low of 115.56 to Wednesday’s ‘Rope Jump’ high of 120.02. A move like this, especially with the ‘Rope Jump’, takes a lot of energy out of a stock. So it needs to rest. The ‘rest’ should form the ‘Blade’ of our Hockey Stick Pattern along the 50-day moving average.
The once GLD completes its “Blade’, the ETF should have enough strength to start its next move higher. How much higher for the next leg? Measure the ‘Stick’.
That’s what I’m doing,
h
Market Signals for
05-19-2017
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | POS |
A/D OSC | SM CHG |
DEANs LIST | NEU |
THE TIDE | NEG |
SUM IND | NEG |
VTI | NEG |
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