Professor’s Comments November 10, 2015

Posted by OMS  at November 10th, 2015

The Dow fell 180 points, closing at 17,730.  Volume was moderate, coming in at 96 percent of its 10-day average. There were 30 new highs and 85 new lows.

Yesterday’s impulsive move down caused the DIA to close below trend line support at the 178 level.  Whenever a trend line is broken, astute traders should always pay attention.  So when the DIA fell below 178 yesterday in an impulsive move, it got my full attention. This is because yesterday’s trend line break was no ordinary trend line. It was the lower trend line of an Ending Diagonal Pattern.  And Ending Diagonals are always termination patterns.

Also, this Ending Diagonal appeared to be the ‘c’ wave of an a-b-c pattern for Major Wave 2 up.  In other words, the odds are high that Major Wave 2 up completed last Tuesday at the 17,978 level, and that everything since has been associated with the start of Major Wave 3 down.

Yesterday’s breadth was the weakest since the rally began on 29 September.  It caused the Up-Down Oscillator to turn negative joining the three other negative breadth indicators that make up The Tide.  So now The Tide is negative. This is another sign that Wave 3 down is starting.

But it’s still early. Both the Dean’s List and the two Money Flow indicators on the cockpit are still positive. So even though The Tide has turned, the inverse index ETFs have still not appeared on the List. This should start happening within the next day or so.

From a short term perspective, yesterday’s impulsive decline and late day retracement was likely the first and part of the second wave down of minor wave 3 down.  Today could see some backing and filling to complete the minor waves.  The thing to look for next will be another impulsive decline once these sub-waves complete.

Remember, IF wave 3 down is starting, the process that we saw develop in Major Wave 2 up should be reversed.  Since 29 September, each rally leg was followed by a period of sideways consolidation, only to be followed by another rally leg.   So IF Major Wave 3 down is starting, each decline …like the one we saw early yesterday, should be followed by a period of consolidation and then another impulsive decline.  The key will be in the impulsive declines. 

At first, they should start out small, just like the one we saw yesterday.  Bullish traders will view the decline as an opportunity to go shopping for bargains.  This will tend to check the decline and even cause a small rally.  But after a while, when it becomes evident that the decline is more than a simple pullback, fewer and fewer traders will step in to buy the dips.  That’s when the decline will start to become more powerful.  This is how a Major Wave decline starts to develop.

So today, watch for the small sub-waves to complete and set the stage for yet another impulsive wave down.

Remember, the initial target for the Ending Diagonal Pattern is always where it began.  And in this case, the pattern began near the 160 level on the DIA. Yesterday the DIA closed at 177.42. 

Like I said, it’s still very early.  But now that The Tide has turned negative, and the lower trend line of the Ending Diagonal Pattern has been breached, it’s time to be cautious if you’re Bullish. Protect yourself.

That’s what I’m doing,

h

Market Signals for

11-10-2015

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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