Professor’s Comments May 3, 2016

Posted by OMS  at May 3rd, 2016

The Dow rose 117 points, closing at 17,891.  Volume was moderate, coming in at 95 percent of its 10-day average.  There were 144 new highs and only 8 new lows.

Yesterday’s rally was a bit too strong for it to be considered a wave 4 within Wave 1 down.  It looked more like part or all of a Wave 2 retracement.  If this is the case, we should see another impulse wave down start either today or once Wave 2 completes.

Yesterday’s rally did not turn The Tide or the Dean’s List positive.  So as long as these indicators remain neutral, I have to assume that the market is still in the process of forming a top. 

If I assume that the Dow topped on 12 April, there was a five wave down sequence that dropped the Dow to the 17,652 level on 29 April.  I’m now labeling this Wave 1 down. 

Wave 2 up started from the 29 April low and could have finished yesterday.  This is why I was looking to trade in SH yesterday.  If the market was about to start a Wave 3 down, I wanted to have something on.

I figured that IF an impulse wave was starting, the SPX which was trading near the 2075 level when I was looking at the trade, could fall below 2050.  That’s about 200+ Dow points.  It’s not a lot of points, but given that I believed it to be a relatively low risk trade, I thought I’d post it.  Besides, IF the decline turns out to be the start of Wave 3 down, it could go a several points lower, possibly down to 2020.  We’ll see.

At this point it’s still hard to determine an exact wave mapping.  At market tops, the clues are revealed very slowly.  However, IF the next wave down is impulsive, it should start to turn many of the cockpit indicators negative.  This would be something to pay attention to as it would signal that the market is headed a lot lower.

Right now the market with the best defined wave count is the NASDAQ.  It appears that Wave 3 down has already started in that index.  If I’m right about this, the NDX could fall from current levels near 4417 to below 3700. One of the reasons I say this is because two of my weekly Money Flow indicators on the QQQ have been negative for the past two weeks.  These indicators do not turn easily and when they do, I pay attention.

Something else that you might want to pay attention to now is gold and silver.  Yesterday’s rally in equities caused several of the gold stocks that I’m watching to pull back slightly.  After Friday’s breakout in gold, it’s starting to look like the metals have entered Wave 3 up, so I’m looking at any pullback now as a possible entry point.  Like I said last week, if gold has entered its impulse wave, the way I plan to trade it is with Rifle Trades.

With Rifle Trades, I hold a small basic position and then look to trade additional shares every time the 2 period RSI Wilder on the daily chart moves into oversold territory. Rifle Trades are my primary method for trading markets that have entered the Trend Mode. And as of last Friday, my custom trend indicator for GLD is now in the Trend Mode.

That’s what I’m doing,

h

Market Signals for

05-03-2016

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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