Professor’s Comments May 27, 2016

Posted by OMS  at May 27th, 2016

The markets were mixed yesterday.  The Dow closed down 23 points at 17,828.  The NASDAQ rose 7 points to 4,902.  Volume on the NYSE was light, coming in at 87 percent of its 10-day average.  There were 84 new highs and 12 new lows.

There was another small change in the A-D oscillator last night, so we need to be on the lookout for a Big Move within the next 1-2 days.  The small signal change signal last Monday resulted in Tuesday’s a 212 point move on the Dow.  So with the today being the last day before the Memorial Day Holiday, the Big Move could happen either today or when traders come back next Tuesday. 

Right now, with a positive Dean’s List and mostly positive indicators on the cockpit, the odds suggest that the Big Move will be to the upside.  As long as the Dow continues to stay above the 17,485 level, the negative Head & Shoulders pattern does not come into play.  So I need to look elsewhere for a pattern, and the only other positive pattern at the moment is a continuation of Major Wave 2 up.  With mostly positive indicators, I have to assume that Wave 2 up has NOT completed, and that wave ‘C’ up of Major Wave 2 up started with Tuesday’s rally. 

I’m not terribly comfortable with this scenario, mostly because I’m still see a lot of negative divergence between price and volume.  AIQ’s Volume Accumulation indicator is still horribly negative, and it’s tough for me to get excited about a potential rally when I look at all the negative volume. Remember, Tuesday’s and Wednesday’s rally occurred on very light pre-Holiday volume, so it is somewhat suspect at this point.  But never the less, it did change the cockpit indicators positive, and I have to respect those indicators.

I did notice that The Tide turned back to neutral after yesterday’s session.  This was due to the fact that the Hi-Lo indicator turned negative.  I should mention that the Hi-Lo indicator on the NASDAQ continues to remain positive.  But I found it very strange that the Hi-Lo indicator on the Dow, which uses NYSE data, urned negative.  Remember that for the past month, this was the strongest of the four breadth indicators that make up The Tide.  When the three other breadth indicators started to turn negative in early May, it was always the Hi-Lo indicator that kept The Tide from turning negative.  So it seems strange that now, when all of the other indicators have turned positive, it’s the Hi-Lo indicator that’s holding out when it looks like the market wants to rally.  Maybe it’s trying to tell us something.

Remember, the market is NOT in a Trend now.  My VTI indicator is showing a reading of 51.82, which gives the market a positive bias.  Readings over 50 are positive.  However, this is still significantly below the 70 level which would indicate that an Up-Trend is starting.  So without a Trend in place, I have to assume a continuation of Wave 2.

Further, whenever I believe that the market is NOT in a trend mode, I trade very carefully.  Non trending markets are NOT the time to be getting aggressive.  Wave 2’s, especially the ‘C’ wave within a Wave 2, often truncates.  This is why I’m only trading small ‘trial’ positions now.

GLD dropped another 0.40 cents to 116.56.  I’m still looking for something closer to 113 before I get interested.  I would also like to see some positive divergence in the momentum indicators, and right now I don’t see any. 

I won’t be doing a WSR this weekend as I’ll be talking about a lot of things, including strategy, during my Update webinar.  I have some really neat stuff to show you, including my most recent research on how to use the Dean’s List to identify trading opportunities based on the U.S. Dollar.  I really hope you can make it.

BTW, CAT rallied to moving average resistance yesterday, but quickly fell back closing at its low for the day.  If you’re currently shorting CAT, or are thinking about it, you do not want to miss my Update webinar.  Dave plans to record the session so it will be available to everyone who registers for the event.

That’s what I’m doing,

h

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

The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ

All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.