Weekend Strategy Review January 16, 2016

Posted by OMS  at January 16th, 2016

The Dow fell a whopping 391 points on Friday, closing at 15,988.  At its low, it was down 537 points.  It was down 358 points for the week.  The NASDAQ was down 127 points on Friday and down 155 points for the week 

It was a very bad week for the equity markets which are having the worst start for a new year in history.  Unfortunately, it appears that there is even more downside to come.

But maybe not just yet.

On Thursday, I said that I was looking to establish and hold short positions for a move under 16,000.  This proved to be very rewarding as stocks tanked on Friday.  I was driving home to Jacksonville on Friday without access to my computer while the collapse was underway.  So when I saw the Dow down over 400 points and under 16,000, I exited all of my short positions.  I felt that it was time to manage my money and enjoy the ride home.

Remember, my initial target for wave 3 down was ‘under 16,000’.  My eventual target Wave 1 down is still a re-test of the 24 August low of 15,370.  But without access to my computer, I decided to take profits while they were available and then re-evaluate when I got home.

So where are we now after Friday’s pounding?  Hmmm?

Well for starters, the Dean’s List and the Tide are still negative.  BTW, since the Dean’s List turned negative on 31 December the Dow has now declined 1,479 points!   It was actually down 1,583 points at Friday’s low.

The Tide generated its Sell Signal on 4 January. Since that signal, the Dow has declined 1,161 points!

Like I said last week, the Dean and The Tide do not give opinions. They just tell you what the market is doing. They are very good at what they do. When both are in agreement, I follow them.

So until they start to change direction, or I start to see divergences in the Money Flow indicators, I still have to follow them.

But the market is EXTREMELY oversold now, as evidenced by a reading of -249.8 on the A-D oscillator.  And the 10 period Chaikin Money Flow indicator on DIA closed in positive territory on Friday, which is positive divergence.  So I need to take this and the wave count into consideration.

The other thing that needs to be considered is that Friday’s low on the Dow reached 15,842 before bouncing into the close.   This level is near the cluster of lows that occurred last September, where the Ending Diagonal Pattern began.  So it’s likely that wave 3 of Major Wave 1 down completed on Friday and the market will now consolidate or rally off these lows before re-testing the 15,370 level.

Anytime I see impulsive declines I have to think they are part of a wave 3.  So it’s highly likely that Friday’s decline was minor wave 5 of impulsive wave 3 down.  In other words, I have to consider the case that wave 3 of Major Wave 1 completed on Friday at the 15,842 level. 

If this is the case, I have to be looking for some type of consolidation wave to develop into next week.  This wave could take the form of a rally that takes the Dow back to the 16,400-16,500 level.   Or it could develop into a small sideways ‘Blade’ to put on the 1,000 point ‘Stick’.  Doesn’t matter.  If the Dow rallies next week, I’m gonna short it.

As long as the Dean’s List and The Tide remain negative, I have to consider any rally as a shorting opportunity. 

Like I said, I still believe we’re going lower.  Possibly a lot lower.  But right now, it appears that the market needs to consolidate.

Have a great weekend.

That’s what I’m doing,

h

BTW, U.S. equity markets will be closed Monday, 18 January in observance of Martin Luther King Day.

Market Signals for

01-19-2016

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