Professor’s Comments October 9, 2015

Posted by OMS  at October 9th, 2015

The Dow rose 136 points, closing at 17,051.  Volume was moderate, coming in at 95 percent of its 10-day average.  There were 60 new highs and 13 new lows.

After open, the Dow fell 147 points to 16,750.  However the move lower was NOT impulsive, suggesting that it was NOT the start of Major wave 3 down.  Instead the early decline appeared to be just another small corrective wave within Major Wave 2 up.

Yesterday’s early decline and late rally suggests that the Dow is forming a 3-3-5 flat wedge pattern for the retracement rally since the 24 August low.  In other words, the final wave ‘c’ up of this rally consists of five sub-waves instead of the normal three. These additional two waves are why the rally extended to the 17,000+ level.

The five sub-waves of wave ‘c’ up have formed another Ending Diagonal or Rising Wedge Pattern. Ending Diagonals are termination patterns, and the one on the Dow appears to be nearing completion. Because of this, I expect the Dow to start its Major Wave 3 down decline within the next few days, possibly as soon as today.

I find it very interesting that while the Dow has exceeded its 17 September high of 16,933, the SPX has not.  The 17 September high for the SPX is 2020.86, and yesterday’s high only reached 2016.5.  So there appears to be a slight divergence between the Dow and the broader market.  This tells me that the overall market is weaker than the Dow.  This same weakness is also evident on the NASDAQ, which is still 149 points from its 17 September high of 4,961.  This puts the retracement on the NASDAQ very close to a 68 percent Fibonacci number, a point that often marks the start of a reversal.

At the close, the Dow was EXTREMELY overbought.  The A-D oscillator came in with another EXTREME reading of 303.03.  This is the second consecutive day the A-D oscillator has had a reading above 250.  The market usually pulls back after one reading above 250.  Now we have two.

I still believe that once Major Wave 2 up completes, the markets will be trading significantly lower 4-6 weeks from now.

IF Major Wave 3 down is starting, the move down MUST start to look impulsive.  The first two legs of Major Wave 3 down should be relatively mild in terms of Dow points. This is why the 16,502 level is still very important.  Once this level is broken, it will confirm that Major Wave 3 down is underway.  However during the initial waves of Major Wave 3 down, while the Dow is still above the 16,502 level, look for impulsive trading action. Thus will be key.  If the move lower is NOT impulsive, then it’s likely that wave ‘c’ of 2 up is still NOT complete and prices will likely re-test yesterday’s intraday high of 17,081.

After the market closed, Alcoa, AA, announced third quarter earnings that were lower than analyst expectations.  Actual earnings were 0.07 cents vs. the 0.13 cents expected . Revenues of $5.6 were also slightly below the $5.65B estimated.  The disappointing numbers caused AA shares to decline about 4 % in after-hours trading.

In my Class at UNF, I talk about the importance of the AA earnings announcement and its impact on the overall market during the following month. 

I usually don’t pay a lot of attention to earnings announcements, mostly because they can be manipulated.  But I do in the case of Alcoa, because it usually sets the tone of the market for the earnings season.  It’s NOT the actual earnings number that AA announces that is important.  It’s the market’s reaction to the earnings numbers, either good or bad, that you should pay attention to.  So after poor earnings were announced, AA fell about 4% in after-hours trading.  This suggests that in the weeks ahead other companies will also be announcing disappointing earnings, causing the overall market to be trading lower 4-6 weeks from now.

After showing early strength, gold pulled back to finish the day down slightly.  The past two days have seen GLD move sideways, forming a small “Blade’ to put on the ‘Stick’ that started from the 30 September low.  The ‘Stick’ is 3.79 points which should be enough to support a ‘Rope Jump’ in the days ahead.  I’m still on Buy signals for gold mining stocks, but the negative Money Flow indicator on GLD is a concern for the base metal.  It really needs to turn positive soon.

Watching.

That’s what I’m doing,

h

Market Signals for

10-09-2015

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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