Professor’s Comments October 27, 2015

Posted by OMS  at October 27th, 2015

The Dow fell 24 points, closing at 17,623.  Volume was moderate, coming in at 92 percent of its 10-day average.  There were 66 new highs and 53 new lows.

Not much changed with yesterday’s trading.  It appears that traders are waiting for Wednesday’s Fed announcement on interest rate policy.

From a pattern perspective, yesterday’s sideways trading appeared to be a small wave 4 within wave ‘c’ wave of the a-b-c flat pattern for Major Wave 2 up.  If this is the case, then the markets could see a small wave 5 rally into Wednesday’s Fed announcement. 

Remember, the time period from today’s close into the tomorrow’s 2pm announcement is usually very bullish.  So if the market pulls back slightly today to complete the small retracement wave 4, there is a good chance that it could rally into tomorrow to complete wave 5 up of the pattern. 

I’m not saying that it will, but the wave count suggests the pattern needs one more wave up, possibly between 100-200 Dow points from where wave 4 ends.

The current a-b-c flat pattern has produced several opportunities for the current Wave 2 rally to top.  So far, all of these opportunities have failed. 

However yesterday’s small decline produced a Bearish Harami Candlestick pattern on the Dow and S&P500. This pattern is often seen at market tops.

A bearish Harami occurs when a large bullish candle, like the one that occurred on Friday, is followed by a smaller bearish candle that remains within the body of the larger candle.  Harami in Japanese means pregnant, and the pair of candlesticks is often referred to as a ‘Mother and Baby’.  The pattern is usually an indication that the current trend is coming to an end. We’ll see.

So this morning there are two conflicting patterns on the Board.  The first suggests that the Dow needs one additional small rally leg to complete the Ending Diagonal.  But we know that Ending Diagonals have a tendency to truncate, so the rally does NOT have to occur.  This is what the Harami is suggesting.  

I’m also starting to see negative divergences in many of my momentum indicators that suggest the rally is losing steam.

Bottom Line:  It’s starting to look like a top is close at hand, and tomorrow’s Fed announcement could be the trigger.

Waiting,

That’s what I’m doing,

h

Market Signals for

10-27-2015

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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