Professor’s Comments October 29, 2015

Posted by OMS  at October 29th, 2015

The Dow rose into the Fed announcement, then fell for about a half hour after hearing there would be no increase in interest rates, then rallied to close up 198 points at 17,780.  Volume was heavy, coming in at 124 percent of its 10-day average.  There were 106 new highs and 56 new lows.

It appears that yesterday’s up-down-up action was part or all of wave 5 up of final wave ‘c’ of Major Wave 2 up.  We’ll see.

Yesterday’s Fed announcement trade only produced a small profit as most of the rally occurred later in the day.  I had been long gone by then.  But even though the profit was small, it was interesting to note how reliable this half-day Fed trade continues to be. 

The rally turned all of the breadth indicators in The Tide positive.  However many of my key momentum indicators are showing significant negative divergences.  These divergences usually occur just before a significant top arrives. 

Negative divergences are also appearing in the transportation index. Yesterday, even though the Dow rallied almost 200 points, ITW, the ETF for the trannies only rose 0.09. The ETF is nowhere near the highs it made earlier this year and appears to have completed its Major Wave 2 retracement. The Money Flow indicator is negative. The fact that the transports are lagging the Dow Industrials is a classic sign that all is not well in the markets.

The percent of new highs in my data base reached 10.41, which is above the level where several rallies have ended this year.

So now we have a situation where all of the required waves for the pattern appear to be in place.  All of the cockpit indicators are positive and at overbought levels.  And the market is showing significant negative divergence. 

If the market starts off lower today, the thing to watch is how the selling develops.  Any early decline should be followed by another retracement rally.  It will be important to watch this rally because IF the market topped yesterday, then this rally should fail to make a new high.  Then once the re-test has been completed, the next wave down should be impulsive.  It should be enough to start turning some of the breadth indicators in The Tide negative again.

Gold (GLD) pulled back yesterday but remains above its 50-day moving average.  As long as it continues to say above the 50, it will continue to move the faster moving average closer to the 200.  Remember, GLD performed a ‘Rope Jump’ ten trading days ago on 14 October.  So now the ETF appears to be developing its wave 2.  I’m still on Buy signals for GLD and most gold stocks, and just waiting for wave 2 of the pattern to complete.

Watching for signs that the market has topped.

That’s what I’m doing.

h

Market Signals for

10-29-2015

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The Hockey Stick Pattern
The Creation of Waves and Trends
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