Professor’s Comments October 16, 2018

Posted by OMS  at October 16th, 2018

The markets rose early, flip-flopped several times during the day, and then closed down.  The Dow finished down 89 points at 25,251.  The NASDAQ and SPX were down 89 and 9 points, respectively.  Volume on the NYSE was low, coming in at 87 percent of its 10-day moving average.  There were 10 new highs and 216 new lows.

Yesterday’s up-down action was typical of what one would expect to see in a wave 4 triangle.  Coming on the heels of two similar bounces and declines after an impulse wave decline, yesterday’s action appeared to be part or all of wave c up within the triangle.  If this is the case, the Dow should rise early today, then fall to about the 25, 100+ level, before making another small rally to about 25,350 later this week.  This should complete all the sub-waves of the triangle and set up the next major decline which would be wave 5 of Wave 1 down.  Based on what I’m seeing in the wave 4 retracement, wave 5 down should complete somewhere near the 24,500 level, possibly slightly lower.

There are three things to remember from our class discussion of triangles.  The first is that they usually occur AFTER an impulse wave 3.  They are periods when the market takes a breather within its current trend.  In this case, the trend is down.  You can see this by looking at the VTI-volume indicator on the cockpit.  Notice the ‘T’ added to the current signal.  So once the triangle completes, the market should resume its downward trend.

The second thing to remember about triangles is that they are consolidation patterns.  They are NOT reversal patterns.  This is the reason I believe the Dow has NOT bottomed yet, and will break lower from the triangle before all five waves of Wave 1 down are complete.  Wave 1 down should complete within the next week to 10 days.  After that, there should be a nice a-b-c retracement for Wave 2 up, but we’ll talk about that in future Comments.

The third thing to remember is that triangles can be difficult to trade.  You need to understand that each of the five waves consist of many sub-waves which makes for EXTREMELY volatile trading.  You must trade them differently, and use different indicators.  Triangles are places where I scalp trade, with smaller positions, taking profits quickly, and get out by the end of the day. 

That’s what I was doing yesterday.  The upper portion of the triangle is near the 25,480 level.  The lower boundary is slightly above the 200-day moving average, near 25,000.  So, when the Dow approached 25,450 yesterday, I was watching the 2-period RSI on the 5 min bars looking for overbought conditions, which I planned to enter my trades.  The trading vehicle I used was the SDOW, an inverse ETF that corresponds to three times the inverse (-3x) of the daily performance of the Dow Jones Industrial Average.  I made several trades during the day, buying SDOW every time it became oversold and selling it when it became overbought.  I had a nice day.

I plan to do the same thing today. If the Dow opens higher, I will buy SDOW when the indicators give say so.  The closer the Dow is to 25,350+, the better.  The if the Dow starts to decline, I’ll take profits when the 2-period RSI on the Dow becomes oversold.  Here’s the thing:  I’m watching the Dow (DIA) but trading the SDOW.  Again, I’ll be trading small positions, and NOT holding anything overnight.  That’s how I trade triangles.

The Sector Ratio fell back to 1-23 negative after yesterday’s session.  Like I said, I’m not doing anything to the long side until I see improvement in the Ratio.    

BTW, if I’m right and the Dow does fall to the 25,100 level, I’ll start looking to establish and hold my short positions after the next bounce.  The next wave up after a decline to about 25,100 should be wave ‘e’ of the triangle. So, once I see all five waves of the triangle complete, I will begin holding my short positions for a move down to 24,500 +/-.  Not now.

Gold and mining stocks reached my near-term target yesterday, so I took profits.  My target for NUGT was the 17 level, so when it hit 16.97 with overbought indicators showing on the 5s, I kissed it good-by.  I’m not done with gold or NUGT, but with the Dollar still showing a neutral signal on the cockpit, I just wanted to take some money off the table.  If NUGT pulls back, I’ll look to re-enter the trade.  I also took profits on all my January GLD Call options yesterday.  The recent volatility in gold pushed option premiums to a point where I thought someone else should own them.  I still believe gold will be higher in January, so I’ll look to re-enter the trade IF gold pulls back. 

Scalping.

That’s what I’m doing,

h

Market Signals for

10-16-2018

One hour video recorded from May 28, 2016 The Professor’s Signs of a Major Market Turn – Prospectives and the Projected Timing and Levels One hour streaming video – includes webinar handouts The Professor usually holds an update class whenever the Market looks like it may be making a major turn. If you have been following the Professor’s Comments you know that a turn is due….. LEARN MORE

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The Hockey Stick Pattern
The Creation of Waves and Trends
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