Weekend Strategy Review March 13, 2016

Posted by OMS  at March 13th, 2016

The Dow rose 218 points on Friday, closing at 17,213.   It was up 207 points for the week.  The NASDAQ was up 86 points on Friday and up 31 points for the week.

Friday’s high reached the 17,213 level, which is about 100 points shy of the Upper Bollinger Band.  It’s possible that the current ‘through over’ rally could extend into early next week to test the limits of the Upper Band, but not likely.

The reason I say this is because Friday’s rally on heavy volume was not accompanied by a corresponding increase in breadth.  The ratio of advancing stocks to decliners is starting to diverge.  These negative divergences are not as evident in the Money Flow indicators yet, but they are starting to show up in many of the volume indicators I watch.

Volume is the fuel that sustains rallies, and right now the current rally appears to be running out of gas.

The market is also overbought. On Friday, the A-D oscillator had a reading of 155.5.  I consider any reading above 150 as an indication of an overbought market.

From a pattern perspective, all of the waves of the Ending Diagonal Pattern, including the ‘through over’ wave I was expecting, are now in place. The final ‘through over’ wave could push slightly higher, but I wouldn’t count on it.   

The timing is also on track.  Several weeks ago, I mentioned that the ‘Ides of March’ would be a likely place for the market to top.  The reason for this is because there are a series of Fibonacci cluster dates occurring between 4-15 March that show a high probability of a turn occurring during this time period. 

All this tells me is that the current market is very close to reaching an important top. 

In Friday’s Comments, I mentioned that I would be looking to establish a small ‘trial’ position in inverse index ETFs if the Dow approached the 17,200 level.  So when the Dow moved above 17,200 late Friday, I bought a few inverse index ETFs.  I bought DXD, the inverse ETF for the Dow and TWM, the inverse ETF for the Russell 2K.  I am not uncomfortable holding a small position in these inverse index ETFs at current levels because I believe the odds for a decline to 15,300 or lower are high.

If the Dow starts to move lower after 15 March, I will add to this this position as the Money Flow indicators turn negative.  I will continue to add to the position when the Tide turns negative.

Basically, I am starting to prepare for the next leg down of a Major Bear market.  The next wave down should be impulsive.  It should also be substantial, with a high probability of falling below 15,000.   The Ending Diagonal Pattern alone suggests a decline to 15,500.  But this will likely only be the start of other declining wave patterns that could take the Dow significantly lower.

This weekend, please take some time to look at the Ending Diagonal Pattern I posted a few days ago.  It’s warning that there is significant danger ahead.  So even if the market moves higher early next week, you might want to review what you’ve learned about Ending Diagonal Patterns. They call them ‘Ending’ Diagonals for a reason.

Have a great weekend.

That’s what I’m doing,

h

Market Signals for

03-14-2016

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