Professor’s Comments May 5, 2016
Posted by OMS at May 5th, 2016
The Dow fell 99 points, closing at 17,651. Volume was moderate, coming in at 102 percent of its 10-day moving average. There were 146 new highs and 28 new lows.
Yesterday’s decline dropped the SPX below the 2050 level which was my target for the small Hockey Stick pattern I mentioned in Monday’s 10:30 Update. So when the SPX reached its target for the trade, I closed out my position in SK for a nice profit.
As I frequently say in Class, stocks tend to move toward targets that are projected by patterns. Once the pattern completes, a new pattern with a new target must be formed. Right now, the major pattern in place appears to be a Rounding Top. And we know that Rounding Tops are choppy patterns with multiple up-down-up legs. So once my target for the trade in SK was reached, it was time to manage money.
There were a few other reasons I closed out the trade. The positive Money Flow indicator on the Dow (DIA) was telling me to be cautious about short positions. Also, the BLS will be releasing the April Jobs Report on Friday, and I never like to be holding trading positions going into the Jobs report.
Too many unpredictable things can happen.
After looking at the charts last night, one of the things I noticed was that The Tide turned back to neutral. The Hi-Lo indicator turned positive again. This indicator has been very strong during the rally started on 12 February. It remained positive for the entire time and only started to show signs of weakness after the 20 April top. It should be watched closely during the next few days.
So with a neutral Tide, I have to remain cautious. I will continue to hold my small position in QID as long as the PT indicators remain positive. But with a neutral Tide, I can’t continue to buy inverse index ETFs from the Dean’s List even though the List has turned negative.
Another reason for caution is The Professor and Emeritus. Both were relatively silent last night. The Professor did highlight 19 shorts, but he also had 24 longs! So even though the Dow has declined 240 points in the past two days, there is still no evidence of a down trend starting. This further supports my belief that a Rounding Top Pattern is developing. While the pattern is a classic topping pattern, it will likely make for some choppy trading ahead.
OK, so with our short-term pattern complete and without a new down trend in place, what is likely going to happen next? Well, one possibility involves the 2050 level on the SPX.
If the SPX rallies into the Jobs Report, it could form the right shoulder of a large Head and Shoulder pattern on the Daily chart. This H&S Pattern would be a sub-pattern within the Rounding Top. Then if Friday’s Job Report disappoints, SPX could pull back and break the 2050 level, which would project a move down to 2020.
As long as The Tide remains stays neutral or turns negative, I have to favor this scenario. If The Tide turns positive, I’ll start looking for positive patterns. But right now I don’t see any.
BTW, gold traders should start watching the ‘Sticks in the Sand’ for the U.S. Dollar. Right now, UDN, the inverse ETF for the Dollar, is on the Dean’s List which is very supportive of gold. However, IF UDN falls off the List and UUP, the positive ETF for the Dollar appears, this would be a sign that gold has not completed its corrective wave 2. If this is the case, gold could fall below 2,000 and possibly retest the 1150 level before starting its next major rally. On the other hand, a new rally high in GLD would confirm that Wave 3 up is underway.
That’s what I’m doing,
h
Market Signals for
05-05-2016
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | POS |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | NEG |
THE TIDE | NEU |
SUM IND | NEG |
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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Category: Professor's Comments