Professor’s Comments Update 3/18/2020

Posted by OMS  at March 18th, 2020

Yesterday’s 1,000+ point rally in the Dow had all the characteristics of a retracement move within a triangle. It did NOT appear to be the start of a new rally.  If I’m right about this, the Dow should begin to decline today as the triangle continues to develop.  As long as the Dow stays above the 20,000 level, it’s likely that the triangle scenario I discussed last weekend occurring.  This scenario requires 5 waves to form before the triangle is complete.  And depending on what type of triangle develops, the Dow could trade anywhere between 20,000 to 23,500 during the process.

Students should understand that triangles, even large ones like the one that appears to be forming now, are consolidation patterns. They usually occur after the market makes a large, impulsive move, either up or down.  They are places where the market tries to catch its breath.  Triangles are also continuation patterns.  So once all 5-waves of the triangle are complete, the next major move out of the pattern should be down.  

Yesterday, the Dow reached a low of 19,882.  So, if the triangle continues to develop as I expect, this low, as a minimum, should be tested.  But because there is really no technical support below the 20,00 level, prices could easily drop to the 17,000 -18,000 level before the Dow forms an interim bottom.  At this point, there is no way to tell. If you hear a TV commentator or your financial advisor say otherwise, it’s probably only hope.  And as I always say in Class, hope is not a strategy.

The reason I say this is because the momentum indicators are still following price.  Before any bottom of significance can form, the momentum indicators will need to slow and begin to show positive divergence.  Right now, this is not occurring.

On the Daily Chart, the 50 has now moved below the 200 day moving average.  So, the Dow is now officially in a down trend.  As long as the Dow remains below the 26,658 level, it will continue to pull the 50 below the 200 keeping the down trend in place. 

Also, the VTI on the Dow has moved into the Trend Mode on the Weekly Chart.  This is an extremely dangerous condition.  The Dow is now below both its 50 and 200 period moving averages on the Weekly Chart, with the 200 at the 23,894 level.  This level should provide major resistance for any upside rally.

Continue to protect yourself. 

That’s what I’m doing,

h

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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