Professor’s Comments Update 8/31/15

Posted by OMS  at August 31st, 2015

With the futures down this morning, one of the things that I’ll be watching is the Money Flow indicators on the shorter term bars.

That’s because with a neutral Tide and both Money Flow indicators positive, there is an outside chance that a decline could also be part of an alternate pattern.

An early decline means that wave 4 is over and no longer in play.  However it does NOT automatically mean that the next decline is part of wave 5 down.  Things are never that certain in trading.  This is because IF the Dow starts to decline below 16,500 and starts to stabilize, it could be part of a larger pattern for a Wave 2 up that could take Dow back above the 17,000 level.  In other words, the rally since the 24 August low and a decline to 16,500 would be the first two legs the a-b-c pattern.

IF this occurs, it does not change the overall pattern.  However it does mean that once this ‘potential’ Wave 2 rally completes, Major Wave 3 down could start earlier than I anticipated.

So we need to watch the Dow as it approaches 16,500.  IF the Dow continues to fall in an impulsive decline, it’s likely that wave 5 down of Major 1 down is underway.  However IF the Dow starts to stabilize near the 16,500 level, and the Money Flow indicators remain positive, then it’s likely that the decline is the ‘b’ wave of Wave 2 up.

Again, I need to point out that trading retracement waves can be tricky, whether they are a wave 2 or a wave 4.  So if you see the Dow trading below 16,500, please pay attention to the Money Flow and Trend indicators.  Wave 5 down should be impulsive.  If the decline is not impulsive, it’s likely that my alternate wave 2 pattern is occurring.

Bottom Line:  If you’re short now, you might want to protect yourself against a potential Wave 2 rally by establishing a stop slightly above the 16,670 level. IF wave 5 down is starting, it should not rise above 16,670.  Any move above 16,670 after a decline to 16,500 MUST be viewed as wave ‘c’ an a-b-c rally that will likely take the Dow back above 17,000.

On the other hand, an impulsive decline below 16,200 with negative Money Flow indicators would likely mean the Dow is heading toward 15,000.

Watching the indicators,

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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