Weekend Strategy Review January 23, 2016

Posted by OMS  at January 23rd, 2016

The Dow rose 211 points on Friday, closing at 16,094.   It was up 105 points for the week.  The NASDAQ was up 119 points on Friday and up 102 points for the week. 

Friday’s high of 16,137 was only 63 points from my projected target for minor wave 4 up.  It got there a lot quicker than I expected.  It also formed a small Ending Diagonal pattern on the shorter term bars that I’ll talk about later.

So it appears that the market could be nearing an important turning point.  But there are still several questions that are unanswered at this point.

For starters, let’s talk about the things we know.  Then we can talk about the unknowns.

The first thing that we can be pretty sure about is that we’re in a minor retracement wave 4 that started after an impulsive wave 3 down.  I had been expecting minor wave 3 down to complete under the 15,800 level.  It hit a low of 15,451.

Once wave 3 down completed, I was expecting a wave 4 retracement rally back to the 16,200 level.  So far it has reached 16,137.  I expected a lot of volatility during this move and that’s pretty much what we got as the Dow gained back 685 points in the past 2 ½ days.  So as of now, I have to assume that the rally that has occurred during the past few days is minor wave 4 up within Major Wave 1 down and not the start of a new major bullish move.

Also, the Dean’s List is still very negative and The Tide is neutral. So until these major market timing indicators turn positive, I have to assume that the current rally is a wave 4.

What I don’t know at this point is whether Friday’s rally was the end of minor wave 4 up or just the end of the first wave of minor wave 4 up.  Friday’s intraday trading action formed five distinct waves on the 10 minute bars, so one could argue that it has all the necessary ingredients for a near perfect 3-3-5 zig-zag pattern.  I had been expecting this type of complex pattern to form and now it has.

But the timing is wrong.  I had also been expecting the wave 4 retracement to last about 10 days to 2 weeks.  So far it’s lasted 2 ½ days.  Hmmm?

So what to do?

Well, as I mentioned in my Comments on Friday, with the Dow up over 200 points and approaching my target, I started to establish a few short positions using inverse index ETFs.  With the Dow above 16,100, I feel the risk-reward for a move down is heavily in my favor.  Remember, I’m assuming that once minor wave 4 completes, the next major wave down should take the Dow to the 15,000 level or below. 

The key word in the last sentence is ‘major’.  I say this because if wave 4 decides to play games and make Friday’s high one high of a more complex pattern, there could be several additional sub-waves to come before minor wave 4 up finally completes.

Doesn’t matter.  I want to have something short on now.  I could get burned if minor wave 4 continues to push even higher, but with a negative Dean’s List and a completed short-tern pattern, I’ll take my chances.

BTW, Perrigo, (PRGO), Friday’s Honor Roll stock, produced a nice short-term scalp trade of 4 points!  If you’ve been watching these HR stocks during the past few weeks, you know that they have produced some really nice winners.  This especially true when Emeritus highlights more than 3-4 stocks on a particular day, or when he highlights several stocks from the same sector. 

Whenever the pattern or my indicators tell me the market is moving into a corrective wave sequence, like a wave 2 or 4, I switch to my scalp trading tactics.  I simply trade stocks from the Honor Roll on the shorter term bars.  By doing this, I’m out of the market by day’s end and don’t have to worry about what the market will do in the overnight session.  I sleep like a baby.

Scalp trading is a fascinating way to approach the market if you have the time during the day.  It can also be extremely rewarding. This is what I was doing last week while I was in Williamsburg, when I only had a few hours each morning to trade before Marcia was ready to go shopping or exploring.

If you’re interested in learning more about how I scalp trade, please send me a short email with your phone number and I’ll get back to you.  In the past I’ve been asked to do some private tutoring, but because this required a student to have access to my trading screen with live data, it just wasn’t feasible.  But now, with products like Adobe Connect available, it is.  Now a student can set up his trading screen exactly like mine and see everything I do in real time.

So I’m finally cosidering doing some tutoring. I see it as an extension of what I do at UNF to help my students learn to trade. This new service won’t be cheap.  Other ‘private’ lessons cost upwards of $10K for a few days of lessons, and they’re really not private.  The classes usually have 8-10 students in them.  My Class will be for individuals only.  I haven’t put a price on it yet, but for the first few students who would like to work with me to develop the delivery vehicle for this new service, I’ll do it at a reduced price.  It still won’t be cheap!

Your trading account should have a minimum of $100K available as most of my scalp trades are 500-700 share lots.

Have a great weekend,

That’s what I’m doing.

h

Market Signals for

01-25-2016

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