Professor’s Comments October 28, 2014
Posted by OMS at October 28th, 2014
The markets were mixed yesterday. The Dow rose 12 points, closing at 16,818, while the SPX lost 3 points, closing at 1962. Volume on the NYSE continues to remain low, coming in at 84 percent of its 10 day average. There were 118 new highs and 58 new lows.
Looking at the wave count, it appears that the Dow could have one more small rally before Major Wave 2 completes. The pattern appears to be a zig-zag, which is actually two separate a-b-c patterns tied together by a small ‘x’ wave. If this pattern is developing, it should complete somewhere near the 16,900 level before wave 3 down begins.
One of the reasons that I’m staying with the zig-zag retracement pattern is because none of my trend indicators have moved into the trend mode during the recent rally. Both the Chandes T-score and the 35 period CCI are still not showing that a new Uptrend is starting. The CCI on the Dow (DIA) is still only -11.49. It would have to rise above +100 to confirm the start of a new Uptrend. So without a new Uptrend starting, the market remains overbought and should start to correct soon.
On Friday, the A-D oscillator came close to generating a small change signal. The difference between the reading on Thursdays and Friday was 15.59 points. Normally I only turn on the cockpit light when the small change reading is less than 10 points. But I’m mentioning it this morning because the pattern on the Dow appears to be nearing completion, and the ‘relatively’ small change reading could be warning that a small rally will occur to finish the zig-zag pattern or wave 3 down is ready to begin. Either way, we should know within 1-2 days.
Shares of TWM, the inverse Russell 2K ETF, were flat yesterday, closing at 47.19. At this level, the ETF has pulled back to form an almost perfect 61.8 percent retracement of its Major Wave 1 Up. The CCI is currently showing a reading of -20.75, so I’m not worried that a new down trend is starting. IF a new down trend was starting, I believe that the stock would have to consolidate and form a ‘Blade’ from before heading lower. And IF a negative ‘Blade’ was forming, the ETF would have to rise several points during the next week or so. However because of the larger ‘Stick’ that formed from early September to mid-October, it is far more likely that any rise would be associated with the next Up wave of this larger pattern than the development of a new negative ‘Blade’.
Also, check out the P-volume. Right now the P-volume on TWM is negative. However, if you look closely, you can see that the P-volume is higher now than it was on 1 August when the ETF was trading almost 2 points higher. That positive divergence tells me that the institutions have been net buyers of the ETF during the recent pullback. It’s a very healthy sign.
The pattern and positive divergence on the P-volume are why I believe the next few days will require patience for the corrective pattern to complete.
BTW, the large ‘Stick’ on TWM is 11.57 points. So if you add this to the recent low of 46.71, it puts the target at 58.28. This is another reason why I’m willing to give the ETF a little room to complete what appears to be a normal Wave 2 retracement.
Also, one final thing. Right now, I’m mostly focusing on inverse ETFs like TWM. I’m NOT focusing on the Dow. This is because of what I talked about in my WSR. With the elections just two weeks away, the President’s PPT could be tweeking a few Dow stocks to keep the market well bid. This is why I’m NOT trading large cap stocks or the Dow. I’m trading TWM. And right now, all of my indicators are showing that TWM is oversold without a new downtrend in place. It’s a time where I’d rather be buying TWM than selling.
Watching,
That’s what I’m doing,
h
Market Signals for 10-28-2014 |
|
---|---|
DMI (DIA) | POS |
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