Professor’s Comments November 19, 2015

Posted by OMS  at November 19th, 2015

The Dow rose 248 points, closing at 17,757.  Volume was moderate, coming in at 99 percent of its 10-day average.  There were 46 new highs and 103 new lows.

Now that the Dow blasted past the 17,668 level yesterday, the odds are high that a move toward 18,300+ is in the cards.  By moving past 17,668, the pattern suggests that the current rally is Wave ‘e’ of the rally that began from the 24 August low. If this analysis is correct, the rally could easily test and even exceed the 20 May high of 18,350.

On the other hand, this does not have to happen.  As we know from Class, the final ‘e’ wave of five wave pattern can also truncate.  It does NOT have to reach 18,350.

In other words, because of the uncertainty of the pattern, it puts us in a real dilemma from a trading perspective.  So we will need to rely on our other indicators to guide us through the next few weeks.

Right now, the Dean’s List is positive.  TWM, the only inverse index ETF still on the List as of yesterday, dropped off last night. 

But The Tide is still neutral.  The Up-Down oscillator has turned positive, but the Hi-Lo index, Summation Index and A-D oscillator are still negative.  This is what is very unusual about the current rally.  The market has been moving higher, but is doing so on weak breadth and Money Flow. Yesterday, even though the Dow rallied for 248 points, the new lows exceeded the new highs by a 2:1 ratio. And both Money Flow indicators on the cockpit stayed negative.  Very strange! 

So what to do?

A lot will have to do with today’s opening. If the Dow starts to move higher, it will tend to confirm the Bullish five-wave scenario.

On the other hand, I still can’t discount the Ending Diagonal Pattern.

Remember, even though the Dow is undergoing a strong rally, it has still not exceeded the 29 September top of the Ending Diagonal Pattern which is at the 17,978 level.  So there is still a chance that this pattern is in play.  For the Ending Diagonal to remain a valid scenario, the Dow must not exceed 17,978.

However because 17,668 was exceeded, the Bullish five-wave larger degree pattern that began on 24 August must now become my primary scenario.  If The Tide and Money Flow indicators turn positive now, they would support the Bullish five-wave pattern scenario and shift the odds toward higher prices.

I should also mention that even though the pattern on the Dow is suggesting higher prices, the Russell 2K has still NOT broken above its Wave 2 high near 1120.  This means that the Wave 3 down scenario remains in place for the small cap index.  However now that TWM has fallen off the Dean’s List, it increases the odds of higher prices for the small caps too.

Bottom Line:  The pattern on the Dow and the Dean’s List are suggesting higher prices, but the Tide and the Money Flow indicators are still lagging.  With mixed indicators, I’m moving to the sidelines until the conflicting patterns and indicators are resolved and the odds for a successful trade become more favorable.

Protect yourself.

That’s what I’m doing,

h

Market Signals for

11-19-2015

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.