Professor’s Comments October 7, 2015

Posted by OMS  at October 7th, 2015

The markets were mixed yesterday.  The Dow rose 14 points, closing at 16,790.  The NASDAQ and SPX were both down 33 and 7 points respectively.  Volume on the NYSE was moderate, coming in at 104 percent of its 10-day average.  There were 24 new highs and 15 new lows.

By moving above 16,600 on Monday,  the odds have increased that the Dow is in  the Major Wave 2 up scenario.  I still can’t eliminate the wave 4 of Major Wave 1 scenario after yesterday’s trading, but the longer rally lasts, the more likely it’s part of Major Wave 2 up and not wave 4 of Major Wave 1 down. 

Yesterday’s high on the Dow was 16,865.  That high was reached after making 5 distinct waves up. So it’s possible that the 75 point pullback from yesterday’s high was the start of a new move down.  However because the 16,502 level was not broken on yesterday’s pullback, the odds still favor the Wave 2 scenario.

Again, if the Wave 2 scenario is occurring,  the Dow will likely re-test the 17 September high of 16,933 , probably topping near 17,000+ before Major Wave 3 down begins.  The SPX will likely move above 2000, with 2020 possible.

If the wave 4 scenario is occurring, the market MUST start moving lower from current levels.  Almost any rally at this point would eliminate this scenario.

While both scenarios will likely lead to lower prices in the next 4-6 weeks,  the big difference between the two is that with the wave 4 scenario, once wave 5 of Major Wave 1 down completes near 15,000, a strong rally into year’s end should develop for Major Wave 2 up.  Under the Wave 2 scenario, a year end rally is unlikely..

There was a very small change in the A-D oscillator again last night, so we need to be on the lookout for another Big Move within the next 1-2 days.  If the Big Move is down, watch to see if the 16,502 level is broken.  If the Big Move is up, pay attention to yesterday’s high of 16,865.  If the Dow moves above 16,865 the odds are high that the Dow will test and exceed the September high. On the other hand, IF the Dow stays below 16,865 and then starts to decline rapidly later today, it will keep the wave 4 scenario alive.

I received several email questions during the past few days concerning money management in the current environment.  This is a real problem in retracement waves, especially during a wave 2 which can and often does retrace a substantial portion of the Major Wave 1 decline.  The questions ranged from should I “double down” at current prices to “should I get out and re-enter at higher levels.”  As you know, I cannot and do not make recommendations to individuals on what they should or should not be doing with their positions.  All I can tell you is that IF the Dow does re-test the 17 September high (no guarantees that it will at this point), I strongly believe that a significant decline will start taking the Dow to lower lows during the next  4-6 weeks.  I believe the decline will be swift, very similar to what occurred during Major Wave 1 down.  I also believe that this decline will probably start within the next week or so. 

I don’t know how these scenarios will impact your money management decisions, but given that my portfolio is being hedged to a large extent by the current rally in gold, I’m continuing to hold my inverse index ETF positions and the SPY Put positions I established using the 20 November contract.

Gold stocks continued to rally yesterday.  GLD finished up 1.09 points at 109.86.  It is now only 2.47 points from making a ‘Rope Jump’ of the 200-day moving average at 112.23.  This would be very bullish for gold.

GDX rose 0.56 cents to 15.68, its highest level since 17 July.  It is also moving toward a ‘Rope Jump’ near the 17 level.  Royal Gold (RGLD) was up 0.51 cents at 50.02.  Like I said earlier, the rally in gold is acting as a hedge for my inverse index ETFs. 

It’s possible that gold will continues to move higher with the Dow during the next few days.  But IF a ‘Rope Jump’ in gold occurs, it could start to change this relationship.  In the months ahead, I expect gold to move higher after the ‘Rope Jump’ as part of Major Wave 5 up, while the Dow moves lower.

Continue to watch the 16,502 level on the Dow.  As long as this level is not broken, the odds suggest the Dow will re-test the 17 September high.

That’s what I’m doing,

h

Market Signals for

10-07-2015

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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