Professor’s Comments October 24, 2014
Posted by OMS at October 24th, 2014
The Dow rose 217 points, closing at 16,678. Volume was on the low side again, coming in at 86 percent of its 10-day average. Low volume rallies, no matter how large, must always be viewed with suspicion. There were 112 new highs and 32 new lows.
While yesterday’s rally was expected, the fact that it exceeded the 16,700 level, reaching an intraday high of 16,767, raises the possibility that the current rally is not part of a Major Wave 2 retracement. Something else could be going on.
At this point, it’s still too early to tell, but the pattern could be in the process of morphing.
The Dean’s List and the Tide have turned positive. However the PT indicators on the Dow (DIA) and the NASDAQ (QQQ) are still negative. The Chandes T-Score also remains negative. So until the PT indicators turn positive, I still have to view the current rally as a normal wave 2 retracement.
Under the Wave 2 retracement scenario, the Dow reached its Wave 1 bottom on 15 October at 15,855. Since then, the Dow has retraced 912 points which is still a few points shy of a normal 62 percent retracement for a wave 2. So as long as the Dow stays under 16,767, it’s likely that the wave count I have been using will remain valid and Major Wave 3 down should start to unfold early next week.
Last night, the A-D oscillator came in with an EXTREMELY overbought reading of 201.5. As we saw two days ago, the market usually pulls back within 1-2 days after an overbought reading like this.
So given where we are in the pattern, I want to wait at least another day or so before I decide what to do with my inverse positions.
The PT indicators on TWM remain positive and the overall turn around pattern remains valid. During the recent decline, a small positive Hockey Stick Pattern has formed. When I purchased my shares of TWM, I mentioned that the ETF needed to pull back to form a ‘Blade’ before it could move higher. I also mentioned that I would hold the ETF as long as the PT indicators remained positive. Well, the ‘Blade’ has now formed, the indicators are still positive and I continue to hold.
Wave 2 pullbacks are difficult to trade. They always seem to retrace more than expected and test the nerve and patience of most traders. But given the fact that that the overall pattern on TWM has not changed and the PT indicators remain positive, I have to let things play out.
So all I’m doing for now is watching.
That’s what I’m doing,
h
Market Signals for 10-24-2014 |
|
---|---|
DMI (DIA) | NEG |
DMI (QQQ) | POS |
COACH (DIA) | POS |
COACH (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
BREADTH | POS |
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