Professor’s Comments May 25, 2016

Posted by OMS  at May 25th, 2016

The Dow rose 213 points, closing at 17,706.  Volume was moderate, coming in at 98 percent of its 10-day average.  There were 100 new highs and 17 new lows.

Yesterday’s large rally was the Big Move predicted by the A-D oscillator. 

The rally turned the Dean’s List positive and The Tide neutral.  It also turned the DMI on the NASDAQ positive.  So once again, the cockpit indicators are mixed.

With mixed indicators, the scenario I talked about yesterday where the markets could rise in a wave ‘C’ rally back above the 20 April high of 18,168 takes on added significance.

Yesterday, the Hi-Lo indicator, one of the 4 breadth indicators that make up The Tide, turned positive.   The other three indicators remain negative.  If these three breadth indicators follow the Hi-Lo into positive territory, the odds would shift in favor of the wave ‘C’ scenario.

From a pattern perspective, it would mean that Major Wave 2 is NOT complete and would likely be forming some type of complex wave structure, possibly a multi-wave, zig-zag pattern for Wave ‘C’ of Major Wave 2 up.

Remember, this market is still not trending.  For the past few weeks, I have been talking about the importance of trends.  I spent an entire WSR on the importance of trends. The reason I’ve been talking about trends so much is because as long as the market is not in a trend, it will be subject to whip-saw rallies whenever it becomes oversold.  Last night, the 2-period RSI Wilder had a reading of 90.94, which is in overbought territory.  So with my VTI showing a reading of 38.29 (No Trend), it’s possible that the Dow will reverse yesterday’s rally and start to head lower again within the next few days.

However as long as the Dow remains above key support at the 17,485, the Head & Shoulders pattern that forecast a drop to the 17,000 level or lower does not come into play.  And IF the Dow continues to advance, and The Tide turns positive, it would blow up the H&S Pattern and Rounding Top patterns completely and the pattern will likely morph into a complex zig-zag as part of Major Wave 2 up.  But right now, it’s still too early to tell if that scenario is occurring.   

This is why I’m still committed to ‘trial’ positions.  Until the market enters the Trend Mode, placing large bets on a non-trending market is hazardous. This is something I talk a lot about in Class when I discuss wave 2s and 4s. The multiple waves that form can chop your trading account to pieces.

Gold took a big hit yesterday, breaking below the 1250 support level I previously mentioned to close at 1227.  By doing so, it’s now likely that the metal will fall below 1200, probably closer to 1180 before corrective wave 2 completes.  This would mean that GLD, the Gold ETF, would likely fall to moving average support near the 113 level, which is where I will be looking to buy my gold. 

BTW, if you recall, I mentioned several times that gold traders should be extremely careful with any long gold purchases as long as UUP, the dollar ETF, is on the Dean’s List.  This Dollar-Gold relationship is something I plan to discuss in detail during my next Update webinar.  I also plan to discuss how the Dollar impacts all markets and what a potential June Fed hike could mean for stock prices going forward.

That’s what I’m doing,

h

Market Signals for

05-25-2016

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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