Professor’s Comments November 11, 2015

Posted by OMS  at November 12th, 2015

Trading was mixed yesterday.  The Dow rose 28 points, closing at 17,758.  The OTC was down 12 points.  Volume on the NYSE was moderate, coming in at 92 percent of its 10-day average.  There were 33 new highs and 92 new lows.

Not much changed with yesterday’s trading. 

The Tide remains negative with the Dean’s List and Money Flow indicators staying positive.  So with mixed indicators, we wait.

At this point, the Dow appears to have its Major Wave 2 rally on Tuesday, 3 November.   The pattern for the rally appears to be a classic 3-3-5 pattern with the final wave being an Ending Diagonal.  Ending Diagonals are always termination patterns that have a target where they began.  In this case, the target is near the 160 level on the DIA.

Yesterday I mentioned that the market would likely see some backing and filling as the first few waves of the rollover process start to develop.  That’s exactly what happened.

I would expect this backing and filling to continue for another day or so before the market starts to head down in earnest.

In last night’s class, I talked about how I use The Tide to trade index ETFs from the Dean’s List.  And this morning, because The Tide just turned negative two days ago, I thought I would remind students about what I look for.

When The Tide changes, all I do is look for index ETFs to appear on the Dean’s List that are consistent with the direction of The Tide.  For example, when The Tide turns negative, I look for inverse index ETFs like DXD, SSO, TWM, and QID to appear.  These inverse index ETFs are leveraged at a 2:1 ratio, so on a day when the Dow falls 1 percent, the DXD is designed to go up 2 percent. 

Right now, even though The Tide has turned negative, the INVERSE index ETFs have still not appeared on the List.  So I wait.

BTW, the DMI on CNI turned negative on the Daily Chart yesterday.  Several days ago, I mentioned that I was looking to establish a short position in CNI on the shorter term bars.  I was interested in CNI for two reasons.  The first was because the railroads have been diverging from the Dow Industrials since they made their highs earlier this year.  This is a classic Dow Theory sign that the economy is weakening.  But in the case of CNI, it’s not only a measure of the US economy, it’s also a measure of the economies of Canada and China. 

The second reason was because CNI and several other railroads like CSX, which has its headquarters in Jacksonville, are already in well-established down trends with their 50-day moving average below the 200. 

When I talked about CNI, I mentioned that it was probably not the most exciting short on the Board, but it tended to form and move in reliable patterns.  I always prefer having the reliability and predictability of patterns on my side when I trade.

So when the Money Flow indicator on the Daily chart turned negative with CNI trading just above the 62 level, I started to short the stock on the short term bars.  It appeared that CNI was completing a Wave 2 retracement.   When the stock dropped to the 57 level on Monday, I covered half my position and placed a stop at my entry point.

If CNI starts to rally and becomes overbought on the 2-period RSI Wilder, I’ll start looking for a Rifle Trade.  Remember, most railroads are now in down trends.  So as we wait for the overall market to start heading down, the rails are already ripe for Rifle Trades.  Look for shorting opportunities when the 2-period RSI is overbought on the Daily’s and then pull out your rifle.

That’s what I’m doing,

h

There’s a pretty nice Head & Shoulders Pattern building on the 30 min bars of DIA. If the neckline at 176.75 is broken, it would suggest a move to the 174.75 level.

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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